(This post was my response to a question on Quora: “Dear Investor, …” How should the rest of the email go? Required elements? Bonus points for…? Tone? How different is it from the communications to the press and to customers?)
Hopefully, you will not break the news via e-mail. If that’s the case, the relationship is most likely broken and therefore the e-mail would have in it all that you need to communicate, to keep your side of the story simple and straight.
However, when investors invest in a company, they know that some things will work and somethings won’t. That’s just how the game is played. If everything was predictable and if success was the only outcome expected, the valuation would have been 10 – 20x more than what you got invested at.
That said, it is important to communicate as often as required with the investors. Share the good news and the bad one too. Share it early. Seek their advice. Seek a point of view. If it is different from what your view is, defend yours passionately but with all the reasons why you think your strategy should work (and the reason could well be emotional.. i.e. I just feel this would work. My gut tells me that this is what I want to do.).
If you have a healthy relationship with your investors, and if they believe that you are doing all you can to make this a success. If they see you committed and with conviction, the failures are just blips on the way. You share your view of what went wrong, what you learnt from that outcome, what decisions you would do differently, what you are doing to take corrective action … and what your going-forward plan is. And then go out for a beer. Have a good evening. Wake up the next morning feeling recharged and go take another shot at glory.
No investor gets upset at getting bad news. (At least the mature and experienced ones don’t and should not). But every investor hates to get the bad news last.