Startups Updating Your VC Investors

Dear Founders,

I’ve received a number of questions from our portfolio startups regarding the best way to update investors. Based on our experience, I thought it would be useful to share my views on this subject.?

First, a brief disclaimer: I do not believe there is a one-size-fits-all model. I don’t claim to have all the answers, and many of you are already doing an excellent job of communicating, so there may be little new for you in this email.

It’s always good to start with a “Why?” Why update your investors? There are two main reasons:

A. You have a legal responsibility to update your investors. This is often outlined in your investor agreements or other documents. This sets the minimum communication standard that should always be met.

I think there are two instances?when it makes sense for a startup to stick to minimal communication requirements.?First, when things are really great. Investors can see the share value rise significantly, the product is taking the world by storm, and even if the founders are not engaged, aloof, or not particularly pleasant—as long as they are doing their job, everyone is happy.?Second when things are bad. If an investor has given up on a startup, the quality of the updates doesn’t really matter all that much.

B. The second reason is a more interesting one. It comes down to wanting to leverage your network beyond the initial investment and requires a?communication strategy that goes beyond the bare minimum. You may be looking for:

• Keeping your investors generally happy
• Obtaining further funds from your investors
• Introductions to other investors, customers,?recruiting etc
• Having your investors as enthusiastic evangelists for your startup. (You would be surprised how often investors are asked about startups we invest in. We are your ambassadors, and a regular update is the difference between an indifferent shrug and enthusiastic advocacy).
• Being able to turn to your investors for their network, advice, and insights

Sub par communication will not mean that your investor will hate and ignore you but you will be a second priority behind those founders who build stronger links. Nor surprise here.?

Let’s go back to good updates; what do they look like? There is no single template, but in my opinion, good updates share a number of features. Here they are:

1.?Frequency:?Monthly updates offer a better connection to your audience than quarterly ones.

2.?Format:?You may want to use a specialised platform, but a regular email is just fine. ?

3.?Structure ??

• A paragraph on the main area of progress, changes from the last update. ??
• Key Numbers: Revenue, Growth, New Clients, Churn. Other figures relevant to your product and business model. Numbers are by far the most important part of your update. You have to pick your own set of suitable metrics. Offer historical data and QoQ, YoY for context. This is the most?important section of your updates. Bad numbers are better than no numbers. We see founders some times wanting to ‘hide’ the numbers, it’s not going to work.
• New client case studies.?
• Information on any new funds raised including the reasons for required funding and the latest round terms. (Investors have their own legal responsibilities and a new raise, even a small one impacts them). ?
• Product development.
• Team news, if any. ?
• Asks from your investors if any.

4.?Brevity:?Keeping the updates brief, under half a page is good.

5.?Authenticity:?Use your natural language. Avoid spelling and grammar mistakes but do not try to make your updates sound like an annual report of a FTSE 100 corporation.

6.?Non-Revenue Metrics of Progress:?There are other ways to show and share your progress. New strategic partnerships, new commercial models, etc., are all great and should be shared. I am less enthusiastic about things like startup awards, etc. The only recognition that counts is the one from the clients, which will be reflected in the metrics.

That’s it from me, I hope this was useful.