“If your startup isn’t sending you monthly updates it’s going out of business.”
That’s the view of serial entrepreneur, angel investor, podcaster and writer Jason Calacanis, who used this blog post to stress the importance of regular investor updates.
“I know this because with two of my investments I found out that they were out of business because I emailed them over and over asking for an update. When the update finally came it was, “can we talk?”, he writes. “When someone says “can we talk?” it’s over.”
“Investor updates” as a concept is relatively new. As Calacanis notes, ten years ago there was no real need for a monthly update, as a startup generally only had one or two. These days, however, some funding rounds consist of dozens of investors, each putting in large amounts of money, and each needing to be kept in the loop.
Why does it matter?
Calacanis keeps a spreadsheet of how often his investments give him updates, so important does he consider the process.
“The columns are the months of the year and the rows are the startups I’ve invested in. We check off the date in the month that we got the last update,” he said.
“When we look at this spreadsheet — and we look weekly — we know instantly who is in trouble and who is rocking. If someone misses their second month I instantly call them on the phone — so I can help!”
That is what he considers the big lesson for founders. Not sending reports because of how bad business is is a mistake. This is the moment when startups should lean on investors most. Your startup has “married” its investors, which means it should be a mutual support relationship.
Maybe things aren’t going badly at all. Maybe they’re going great. But there’s still a reason to keep the investor in the loop: you may want to ask them for more money in the future. Keep them updated, and they might take part in future rounds. A happy investor is a long-term investor.
Aaron Harris, partner at Y Combinator, says there is a “correlation” between quality and frequency of updates and the strength of the startup and its founders.
“I strongly doubt there’s a causal relationship, but I do think it makes sense that the best founders would write good and frequent updates because it reflects their own processes and attention to metrics and consistent growth,” he says.
And Harris believes that, in addition to the benefits of obtaining investor support and keeping options open for future rounds, the mere act of writing a good investor update itself forces a founder to focus on the right things. Knowing you have to do a regular update will help focus you on the nuts and bolts of the business.
“It’s a hell of a forcing function, a bit like writing your growth on the whiteboard every month for everyone to see,” he says.
How to do it right
Does it all still sound like a pain in the backside? Well, it is a bit. But running a startup is by nature complicated. Like it or not, you do owe your investors something, and for the reasons noted above you do need to keep them sweet. Here’s a few tips on how to do it right.
- Do it monthly: The more regular the better. The investors feel like they are in the loop and consulted, and it forces you to continuously analyse the state of your business.
- Keep it concise: You want your investor to read the whole thing, and remember all of what you said. Don’t waffle. As Calacanis says: “They don’t have to be “War and Peace” (or even 100% comprehensive).” If you can use charts or diagrams to make things clearer, so much the better.
- Lead with key numbers: The numbers are key – users, revenues, growth. So lead with them. Generally, these are: money left in bank, monthly burn, revenues and traffic. Again, use charts where possible.
- Be generous with good news: Let the investor share in your successes. Got any product updates? Show them. Press clippings or customer testimonials? Show them. Detail your big wins, your hires, any VC interest.
- But don’t hide the bad: As we heard from Calacanis above, when times are hard you should be able to turn to your investor. They don’t want to hear from someone else your company is struggling. Let them help, or perhaps also present them with a solution to the problem.
- Ask questions: But not hundreds, keep it to the important things. Make requests of your investors, and put these requests near the top so they definitely see them. This is one of the best ways to make investors feel needed, but they could also prove invaluable advisors.
Communication is key when it comes to the investors in your startup, with small businesses having a reputation for being riskier investments. You don’t have to only do it through formal updates. Newsletters, not necessarily intended to spell out your startup’s financials but simply explaining what is happening with the business and where you plan to take it, are also useful, as are open houses, recorded phone updates or even video releases. Make sure you’re communicating.
Updates are so important, in fact, that a whole industry has sprung up around them. Templates like this one, or this one, or the one available here are all over the web, find the one that works for you. Or if you’re really finding it hard to find the time, there are tools available. Sharkboard simply calls your company every month, notes down your updates, collects your KPIs, and sends it all to stakeholders. Reportedly was built to help ease the burden of creating status reports. Help is at hand.
The main thing is to keep it honest, provide the key numbers, and make sure your investors feel in the loop and that their opinions matter. But the process also helps you, the founder. If you need help, an investor can provide it. If you’re going well, keeping the investor in the know can increase your chances of future investment from them. And putting together the updates allows you to zero in on the key factors of your startup. It’s a win-win situation, even if it takes some effort. Just do it, and do it right.