Communication between the startup and the investors is too often a problematic area - while it should not be. With sound communication the startup can engage the investors more enabling them to add more value to the startup. Establishing a good communication does not need to be a burdensome task; in this article we dive into how planning ahead makes this pretty straightforward task.
Agree on communication
Usually, contents and interval of investor updates are agreed in the shareholders’ agreement. Nevertheless, a startup should always agree with the investors clearly how often to expect the updates and what is the content of the updates. Interval of the updates depends on the startup and its stage, but bi-monthly updates usually work.
Use simple format
Using a simple format makes the updates structured and saves time in drafting the updates. Also, it does not usually make sense to send stories covering several pages, key things can be summarized in a short email. The format that I often use with my startups has three sections:
Key metrics and financials,
Top 3 successes, and
Top 3 challenges.
Key metrics and financials
This should focus on the key metrics you are following and are meaningful for the investors as well. The metrics can be e.g. MRR, churn, CLV and so on. Try to keep this at max in three indicators. Present the metrics in a constant manner showing the changes in the metrics after the previous update.
Under the financials you should always present your burn rate and runway.
Top 3 successes
Include here you biggest successes, e.g. major deals, version releases, key hires. (So far I have not met a startup that would have problems in telling about successes so I end this one here.)
Top 3 challenges
List your top challenges, e.g. development deadlines missed, deals not closed, running out of cash. Be open about the challenges: the more the investors know about the challenges the more they can help you. This is your opportunity to reach out to investors, so use it.
Investors hate when companies come asking for funds as a last resort, so if the company is not performing financially as anticipated and a new funding round arises in the horizon, it is a good idea to prepare the investors for the possibility as early as possible. Then the investors can prepare for the funding round and help in the fund-raising process as well.
A good entrepreneur is a lazy entrepreneur (from time to time). To leverage your time spent for the update, use the same information for other purposes as well. As such it works for updates with team and basis for board meetings. The Top 3 successes are probably something worth using in your client and marketing communications. And while the update is meant for investors, it is useful for other stakeholders as well (e.g. auditor, bank contacts, governmental organization when applying for grants).