Investor updates – especially in the early days – are a must yet founders often neglect to do them. Why and when should founders do them?
Before the Series A, companies usually don’t have boards so there is no formal mechanism for reporting. Early investors are believers who understand the founder is super busy building her/his company. Many don’t demand regular progress updates. But it behooves the founder to build the discipline of regular reporting. I think a good discipline is to do a quick monthly update (a good, solid email is fine) for the first 12 months then move to more structured reporting quarterly. Why? It’s good practice and it’s an insurance policy. I heard a phrase recently that I like — “Practice like you play” meaning if you’re practicing a sport or musical instrument or whatever, it’s likely you’ll play like you practice. So give practice your all. And I think building early reporting discipline will get you in good shape to do it once you raise your Series A and have specific reporting expectations. Plus – if you’re like many companies – you’ll be going back to the same early investors asking for a tweener investment before you get to your full blown Series A. And if the investor hasn’t heard from you since they wrote the first check — and the news isn’t totally rosy — they’re going to be less inclined to write another check.
Most of my portfolio companies suck at reporting. Truly. Some, however, are awesome. In the early days of Twitter, Biz Stone wrote a wonderful Sunday night note to the company about everything that happened that week and he forwarded it to the early investors. It wasn’t an investor update per se and wasn’t so much about metrics and milestones but it was a beautiful and heartfelt insight into what goes into building a great mission-driven company. It featured stories about people in the company and how users were using Twitter in mind-bending ways. Biz should turn those early notes into a book. Jason Goldberg also did terrific updates in the early days of Fab. In fact, I’d say he was radically transparent. Among all my portfolio companies, the best at early reporting has been SellBrite. Brian, the founder, writes a regular, detailed report about the business. No hyperbole. Just fact and insight. It’s a pleasure to read, not just because the charts are all up and to the right (which they are), but because it gives a very good overview of how things are going…hits and misses…kpis…milestones…what’s keeping the team up at night…everything you need to know to understand the health of the business. At the end of the post, I’ll share an outline of what the best updates include.
I can usually gauge the health of the company from founder communications. In all cases, if a founder is good at sharing wins and keeping investors up to date in some fashion and then goes silent it’s never because the company is crushing it. One of my companies was on a great trajectory for months and months then went silent. In the back of my mind I thought hmmm something’s up. I finally got around to writing the founder and sure enough they’d hit a big speed bump. I think in those situations, the instinct is to hunker down and focus on the problem. But I think that instinct is absolutely wrong. I think the right thing to do is be open and engage your investors. There is a high likelihood one of your investors has seen this movie before and might have valuable insight. It was the same story for another one of my companies…everything was going well…updates were terrific then…crickets. After a few months of silence, I got a panicked note that the founder needed a bridge because cash was short. Ultimately I contributed to that bridge but it took a while for me to reconnect with the company and founder and frankly it left me feeling a little squeamish. You have a bond with your early investors. Keep that bond. You might need it.
So if you’re a founder and it’s early days you know what to do. WRITE THOSE UPDATES. Once you get to a Series A or B (and other peoples money) you can be more casual with early investors. Post Series A, if I haven’t heard from a founder, I’ll do periodic check ins. “Hey, how are things going…” And I’ll often re-engage around fundraising. I have a good network and have helped founders with introductions that have produced almost $100M in checks.
Now, a few words for investors. I’ve seen investors who are absolute jerks. They write a small check and feel like they own the company. They hit “reply all” to every update email and panic at every hiccup, offering advice on every little thing. OMG shut up! If you want to opine, make sure the topic is material and your input is worthy. The worst is when you see a note that says something like “my niece used this app and shared it with her friends. They all said they don’t get it. You need to do XYZ.” Who knows if the niece is even the target market. The founder has much better sources of insight data. So now you see why founders shy away from updates. In cases like this, I’ll usually have a quiet and polite conversation with the investor about what’s reasonable. It usually starts with “Dude you need to chill out!”
What’s in a great update:
- KPIs (every category has it’s unique metrics, e.g., MRR for SAAS, GMV and liquidity for marketplaces)…Share the numbers and context.
- Hits/Misses i.e., Good/Bad…here’s where you can share whats working and what’s not…and ask for help if you need it.
- How you’re progressing on the product roadmap
- How you’re doing on customer acquisition, CAC trends, etc.
- What you’re doing in BizDev. What’s working and what’s not
- How the team is coming together, key positions you’re hiring for
- Cash On Hand and Burn Rate
- Help Needed From Investors (fundraising, hiring, BizDev intros, etc.)
3 thoughts on “Investor Updates. Why Bother?!”
Great stuff. In fact, a recent survey confirms that startups that embrace transparency actually execute better for their investors. The link is both a corollary relationship; better CEOs know this is part of their job, but there is also casuality – CEOs that need more help get it due to the transparency. Investors should make this one of their primary due diligence criteria…
I’d add this…
For the same reasons that a company’s CEO wants a near-realtime dashboard for his/her organization, investors should also want feedback that’s as concise and timely as possible. As stated by the author, they can be a founder’s greatest allies; bringing resources and solutions before normal problems balloon into unrecoverable ones.
Publicly traded companies have the legal obligation of standardized quarterly & annual reporting to their shareholders. All the needs and reasons, however, for that reporting: transparency, accountability, and a standardized financial framework for measurement, still apply when a company is very young. Good old fashioned financial statements – the income statement, balance sheet, and statement of cash flows – can help satisfy this if readily available to someone owning or investing in a small company. You should have your accounting setup so that these 3 are always populated by current data and pumping them out is a 5 minute affair; it’s a regular snapshot of financial health. Share it quarterly at least.
Great Article. Thanks!
Joe Milan, can you post a link to the study you mentioned?
Nice post. This sums it up perfectly: “I can usually gauge the health of the company from founder communications.”
I believe founders who do regular updates have a distinct edge…the updates become their “secret weapon.” This applies equally whether the updates are going out to existing investors (i.e. to engage and inform) or to prospective investors (to warm them up for the next round, and to show you can execute.
It’s also a pretty good exercise in “startup mindfulness” if you can take 30 minutes a month to objectively assess what’s going on with your business. Personally, I find this part the most valuable when I do my updates.