Risk assessment is a component of every report to investors, and a deep-dive into how you communicate your risk analyses can shed light into how best to present your findings. Being up front about wins, losses and lessons, the balance and diversity of your portfolio, potential ROI, all can instill confidence in your ability to manage inherent risks, aiding investors in their decisions on risk exposure. 

In outlining your risk mitigation strategies, like setting specific investment agreement terms, implementing due diligence, compliance and governance measures, and providing active support for your portfolio company leadership, you show investors your proactive approach to risk management. Demonstrating that your risk assessments are backed up with relevant data and historical precedent, coupled with your dedication to the health of each portfolio company can instill confidence in your investors.

In our market insights post, we talked about a “business war games” idea that could be applied to that report in creating it as a virtual event, and we think the same applies here, but instead of markets, the levers that are pulled in the game might lean geopolitical. Click that link if you want more information on how you might create an event that makes sense from a risk perspective. The risk assessment report is also one that has content and format that easily accommodates an external thought leader. We feel these are two strategies to employ to make this report more interesting, well-attended, and viewed post-event.

What’s included in an update to investors on Risk Assessments?

• Market Risk
  • An analysis of geographic, environmental, economic, and social trends, current and projected market size, and changes in the nature of the competition
  • Survey results and data analysis of customer preferences
  • Targets for or new partnerships, mergers, or acquisitions
• Operational Risk
  • Risks in the product development process, including technical feasibility and timelines
  • Evaluation of the strength, expertise, and track record of portfolio companies’ leadership
  • Examination of operational processes and potential bottlenecks
• Financial Risk
  • Assessment of and factors affecting profitability
  • Examination of the companies’ cash flow management, including operating cash flow, investing cash flow, and potential funding rounds 
  • Companies’ liquidity and solvency
• Technology Risk
  • Current relevance and future viability of the portfolio companies’ core technologies
  • Analysis of the companies’ cybersecurity practices, including potential vulnerabilities and their plans for preventing and responding to cyber threats
  • Assessment of data handling, storage, & privacy measures
• Regulatory Risk 
  • Recent or forecasted regulations and the affected geos/sectors/markets and their impact on the firm, the investors, or portfolio companies
  • The consequences of non-compliance and opportunities arising from changes in regulation and strategies to address
• Compliance Risk
  • The impact of compliance issues and the status of resolutions 
  • Measures to prevent the recurrence of compliance issues, including compliance audits and their outcomes
  • Any new or ongoing educational initiatives and the results of their success or shortfall
  • Details on instances of non-compliance and resolution
  • Strategies for identification and mitigation of compliance risks
• Legal Risk
• Assessment of settled, ongoing, or potential lawsuits and their impact on operations
• Firm’s strategic objectives behind its regulatory advocacy efforts
• Assessment of the firm’s and portfolio companies’ intellectual property rights and any infringements

And within each of these, if you’ve updated your best practices in handling this type of risk, you will include that as well.

Who’s Involved?

• Your Risk Manager identifies investment risks, assesses their probability and potential impact using quantitative techniques, and ranks them to guide decision-making processes. They regularly update strategies to manage or reduce these risks when changes in market conditions and the regulation occur. They educate, but may also also train, other firm members about risk assessment processes, collaborating with internal teams in the firm to gather data for risk assessment.
• Your Legal Counsel identifies legal risks related to prospective and current investments, assesses the impact and likelihood of regulatory changes, and reviews contracts and other legal documents tied to investments. They ensure compliance and suggest legal strategies for risk mitigation, maintaining thorough, clear documentation of risk assessments. They also educate the team about legal risks and compliance issues and are part of the team that conducts due diligence for prospective investments, recommending deal structure. They are your point person in liaising with governmental authority and outside legal counsel, affiliated or unaffiliated.
• Your Portfolio Manager conducts portfolio analysis, identifies risks, and recommends mitigation strategies. They analyze market trends, evaluate potential investments, and advise on strategies based on the firm’s risk tolerance and return objectives. Collaborating with legal and compliance teams, they help guide portfolio companies in adherence to regulatory requirements.
• Your Compliance Officer monitors regulatory changes, evaluates their implications on industry, and recommends strategic changes. They compile and disseminate reports, create and implement training programs, and work with the firm’s industry and geographic experts to better understand new regulations. They may conduct audits or work with an external auditor to ensure compliance and identify potential risks and fraudulent activities within the firm. They manage a regulatory calendar and likely lead the firm’s data protection and privacy initiatives.

What are the goals of the Risk Assessments report?

• To educate investors about different risks, their potential impact on investments, and risk management strategies, empowering them to understand and navigate the risks in their portfolios
• To communicate the potential impact of regulatory changes on investments and portfolio companies and inform them about the firm’s efforts to manage and mitigate these risks,  demonstrating compliance with regulatory requirements 
• To involve investors in the risk assessment process, showing the methodologies and assumptions used and requesting feedback on the interpretation of data
• To solidify risk governance processes and frameworks, ensuring consistent and effective risk assessment practices aligned with industry best practices and establishing new best practices within the firm and your portfolio companies

What can you include when planning this update as a virtual event to achieve these goals?

Almost every report your company includes a risk assessment. If you haven’t read the other articles in this series, the links are at the bottom. You’ll want to refer to this article most often if you are planning virtual events around your regularly scheduled reports. 

We all remember the Harvard Business Review case studies that we worked on in our college courses. Hopefully you remember them fondly; if not, you may not love this next idea. We’d be willing to bet that there is already an HBR case study with similar themes that may apply to a current risk management conundrum you are facing or may be looming. 

Breaking your investors into teams and having them come up with strategies for a fictitious scenario can brighten the mood of this report while giving insight into what path the firm can take to most successfully mitigate risk.

This dovetails with the business war game idea we mentioned before. You might expand upon the case study theme and have successive breakout sessions where each team chooses a path of action to advance their strategy and each team has to deal with the repercussions of the other teams’ choices. Note that you will need to space the breakout sessions out to give your team enough time to compile all the strategies chosen and present the next quandary.  These case studies might be hyper focused on one risk category or may cover a broad spectrum. 

At the end, a winner is crowned, and you may have also gained a more thorough understanding of your investors’ risk tolerance (but you may not have, as little is at stake here) and you may have also learned new information, changing the path your company may decide to take in risk mitigation.

Other things to consider are:

• Bring in your portfolio leadership to talk about some of their risk mitigation strategies, then put them in breakout rooms to talk with investors
• Ideas for visiting thought leaders:
  • Current or former regulators 
  • Post-doc researchers or research fellows working on related subjects
  • Popular creators (Substack, Twitter, Medium, YouTube, etc.)
  • Startup whisperers like Eric Ries or Simon Sinek with background in advising portfolio companies on risk management strategies 
  • Current or former regulators in a vertical or geographic region
  • Current or former ambassadors or political figures with insight into geographic areas of interest for the firm
• Post-event on-demand video can include snippets of the pre-recorded video presentations to use in public or investor/portfolio company-only social channels and can be incorporated into a podcast

Benefits over your traditional communication strategy

We always mention analytics and the post-event multimedia content generated. The risk report can also include a lot of interactivity, working doubly for you in strengthening your investor community and allowing you to glean insights from investor preferences and their questions, but also from suggestions on strategy. It’s OK for your firm to be looking for answers. No one likes a know-it-all, and it’s not possible to take all factors into account, so it’s OK if you’re preparing this report with the confidence that you’ve made the right decision and are ready to accept feedback and change strategy with new information. 

Sponsorship makes sense in this scenario if you are working with a legal counsel or accountancy that is addressing some of your most important risk mitigation measures. Pretty much the only sponsorship that we would ever suggest, aside from portfolio companies (but that’s just a marketing/networking opportunity). 

Anytime you’re gathering investors, get your key people into breakout rooms and give them access to your top minds. This makes sense with any report. If portfolio company leadership is excited to get in the room and share what they’re doing, make sure they are aware of the opportunity to join. All investors want to know their portfolio companies are doing everything they can to make (and prevent the loss of) money.

More on this topic

If you haven’t read the other parts in our series on Virtual Events and Venture Capital Communications Strategy, check out the links below:

• Virtual Events and Venture Capital – Performance Updates
• Virtual Events and Venture Capital – Market Insights
• Virtual Events and Venture Capital – Strategic Adjustments
• Virtual Events & Venture Capital – Portfolio Company Reports
• Virtual Events and Venture Capital – Bonus: Personalized Investment Performance