In the current economic environment many startups will need additional funding from their existing investors. While the markets cool down, internal rounds become more and more common. Even if a startup manages to find a new lead VC, it will still need support from its existing investors. This is where sending regular updates becomes critical.
Investor updates are a crucial component of any startup's investor relations strategy. Even though they may seem to be time-consuming tasks with no immediate benefit, they will be of help during the next fundraising stage. Maintaining existing relationships, after all, is much easier than trying to build new ones. Unfortunately, many startups don’t follow best practices of communication and are then surprised by slow or negative follow-on decisions from their existing investors. This is why we advocate for startups to establish (early) a regular schedule for investor updates, no matter if the news are terrific or very much less so. Our key guidelines are presented below. They should be especially helpful for Seed and pre-Seed staged startups.
Bad practices for investor updates:
- Don't hide bad news or setbacks in your investor updates. It's better to be transparent about any issues the company faces. In fact, investors expect that not everything will work out, such is the nature of the game in VC. They can also be instrumental in finding solutions or connecting you to someone who can help or give you valuable advice early.
- Don’t ghost your investors, especially when things get tough. Often VCs get investor updates shortly after writing their check. At some later point, however, this communication can become irregular or stop whatsoever. Unfortunately, such patterns send investors negative signals and destroy their confidence in you and your company.
- Don't ignore investor questions or feedback. Some investors can be overwhelming, we’ve all been there (on both sides!), but still try to do your best to engage with investors promptly and demonstrate that you take transparency and accountability seriously: sometimes a quick response right away: “will get to you on this next week” is more important than the actual response to the underlying question. It shows that you are on top of things, and know how to prioritize your time. Taking feedback from investors is also important—don’t be defensive—remember, investors are on your side! Even if they ask annoying or uncomfortable questions. Plus, it gives you an additional and early perspective into what your potential future investors could ask about or consider to be an issue in your business.
- Don't provide incomplete or misleading information. This should be pretty straightforward but will repeat it here anyways: don’t lie or “twist” the truth to make the narrative sound better, reference #1 above.
Good practices:
- Establish a regular schedule for investor updates and stick to it. Consistency is key to establishing trust and reliability. For Seed and Series A startups we advise to send updated with a monthly-to-quarterly cadence, depending on how “advanced” the company is within each stage, and how experienced the founders are. If this is your first time, don’t be afraid to over-communicate. Series B+ companies should be fine reporting quarterly. Here are some handy templates you can use for your investor updates.
- Keep investor updates brief and to the point (with the above caveat for first-time founders). Focus on the most important metrics and highlights (yes, often picking the “right” metrics to report is half the battle). But as a general rule you should strive to include monthly revenue, revenue growth, churn, burn rate, and cash runway (all as would be applicable for your specific business). Avoid reporting different sets of metrics from one update to the other: it’s harder to comprehend how the company is doing when the goalposts are constantly moving, and even changing in nature!
- Provide context when sharing metrics or financial information. Explain what numbers or directions mean in relation to the company's goals and progress. Don’t be afraid to be extra explicit as if educating a 3-year-old about your business: “up is good here, down is bad there”.
- Encourage engagement from investors. Indicate areas where you need their help or input. Invite your investors to participate and provide feedback. Do not leave this until the board meeting—meetings are for agreeing on making decisions and solving big, hairy, strategic issues, not for learning the state of the business or hearing for the first time about the challenges that lie ahead.
Templates for existing and potential investors
The good news here are that you don’t have to reinvent the wheel. There are tons of templates for investor updates available on the Internet. Here are some examples that you can use (besides the ones from the earlier link above):
In addition to keeping your existing investors updated, it is also useful to send regular emails to your potential investors with whom you may have communicated before or to those who passed on the investment previously but indicated their interest to remain in contact. This will help you build up the list of potential leads for the next round. We advise to use the same guidelines and templates as above, but you may want to abridge or “sanitize” some of the more sensitive information, though we have seen a few founders building in the complete open, absolutely not hiding anything from anyone, even from prospective investors, or even competitor’s investors. And you definitely can be updating your prospective investors on a less frequent basis than you would do with your existing investors.
We hope reading this short guide was helpful. We apologize if some points were obvious (though often hearing what you already know from someone else can help with the motivation to actually act on that knowledge). At the end of the day, use common sense and put yourself in the shoes of your investors: how would you want your investment to communicate with you.
Good luck with your startup and happy communicating!