Keeping Your Investors Informed

Engaging stakeholders who want to help you can be a helpful exercise in staying focused on things that really matter to drive enterprise value. By investing in a single update sent to key stakeholders, you leverage your time and build context to make later 1:1 conversations with investors more valuable.

For this post, I will focus on "regular updates," usually delivered in a monthly or quarterly email to investors. Other investor communication topics like board meetings, extraordinary situations, etc., could be the subject of a future post.

Who should receive this?

Generally, the audience for a regular investor update falls into four categories:

1. Board members
2. "Major" investors
3. Other (smaller) existing investors
4. Non-investors you'd like to keep in the loop for a future funding round

Most early stage companies will not see a distinction between #1 (board members) and #2 (major investors) above, but as a company matures to later growth stages, this distinction may become apparent. Similarly, seed-stage companies probably won't distinguish between the first three categories, except perhaps to share the update first to larger stakeholders before a broader distribution, depending on the nature of the investors on your cap table.

The fourth category is really a difference audience. In the first 3 categories, the audience is already committed to your company: they are on your cap table, they want to help, and they wonder about how their investment is doing. As you write to this group, you should be candid about what's working and what's not, and be open about seeking their help where you want guidance.

In essence, you're already married to the folks in the first three categories, but you're still dating the folks in the fourth category. Including them might change the nature of your communication because for the fourth group, you're marketing your company for potential investment, and they may not feel any duty of loyalty to guard sensitive information. And, while it's good to update your existing investors regularly, your "prospects" may need (and prefer) a less frequent update. My recommendation is to keep your investor updates limited to your existing investors, and to selectively forward the update to "prospects" you've offered to keep in the loop. When forwarding, you could always choose to delete or redact a section of the message that contains especially sensitive info, or add a personal note, if desired.

The most important thing is regularly updating your most committed stakeholders. If a smaller audience reduces performance anxiety and makes it easier for you to provide candid updates, then favor a smaller distribution.

How to think about investors

It is not helpful to think of your investors (or your board) in the same context you may have viewed a manager in a prior operating role. As CEO, it is your job (and your executive team's job) to manage the company. It is critical to understand that board members serve a governance function, whereas the executive team serves a management function. (As an aside, bad board members may not understand this distinction, and entrepreneurs should avoid working with them).

It is most helpful to treat your investors like co-owners in the business, as partners. However, you are different classes of partners. They earned their piece of the partnership primarily by providing money, and you earned your piece of the partnership by founding and operating the business.

Venture capitalists invest in companies where the future holds many risks. At the time they invested in your business, your investors became comfortable with a risk-weighted valuation in hopes the company could overcome those risks, growing enterprise value considerably in short order.

Some of the thoughts that may be going through your board member's head when she reads your update:

• How are we performing relative to plan?
• Are things better or worse than last month's update? Why?
• Is the CEO focused on the right things?
• Is there a specific problem or question where my help could make a difference?
• What does this update portend for our next board meeting or call?
• How is the founder feeling; what's her general state of mind / emotional state?
• What additional info do I need before forwarding this update to my partners?
• How should I reply to the founder?

Which content should the update include?

Generally, the regular updates should include:

• Numbers that define the rhythm of your business
• MD&A, including an outlook
• Cash & burn
• Asks (if any)
• An attached reporting package (Series A + beyond)

Rhythm of the business

What's your north star? Most startups have a critical metric that, more than any other, receives the focus of management. For a Series A stage SaaS startup, it may be ARR booked in the period. For others, it may be some other measure of customer acquisition. For a developer-oriented platform in the pre-revenue stage, it may be a measure of developer adoption of the platform, or a technical measure of product progress. State progress against your north star metric right up front, loud and proud.

Then, after your north star metric, include the other 3 to 5 metrics that give the best sense of a rhythm of your business. This could be measures of average order value, average contract value, repeat customer rate, gross margin, contribution margin, retention rate, customer acquisition cost, net promoter score, GMV, net revenue per unit of measure, etc. The point isn't to throw the kitchen sink at it. Rather, by flagging the performance of a few key metrics, you demonstrate that management has determined the key performance indicators most essential to track in the "TLDR" update for your company.

If you run out of time, and can only send the "TLDR; Metrics" portion of your update, that's better than sending nothing.

You may want to organize these metrics by functional area, such as sales, marketing, product, and operations. For example:

• Sales: $105k in ARR booked (+6% m/m, 87% of plan); ACV rose to $17k
• Marketing: $378k in pipeline created (+12% m/m, 102% of plan)
• Product: shipped [feature X];
• Operations: NPS +64 (-8 mo/mo); 67 days book-to-board (-8 days mo/mo)

Beyond the KPIs, or if your business is too early to have many meaningful KPIs (rare!) you may instead want to provide a functional update across the functional areas of product, sales, marketing and operations.

Management discussion and analysis

As CEO, you and your management team may have some "color commentary" to put recent results into context. Folks call this "management discussion and analysis" or MD&A for short. This is your opportunity to pontificate on what you're seeing in the market. MD&A tells you things a spreadsheet cannot:

• "We're seeing a lot of competitive pressure from Competitor X. In 8 recent deals, we saw them in 4 and lost to them in 3, primarily due to reason A or reason B. We're working to fix this by..."
• "We had to slip shipping Feature X to next month, due to reason A or B."
• "We're seeing newfound demand from people who want to use our apartments to work from home, with average stays of 1 month or more. We're testing changes to our search page to better accommodate this use case."

This may also be a place for you to discuss personnel problems, but be careful about these topics as they are among the most sensitive and often best handled verbally or 1:1. If there's an area of the business badly missing plan, the investor will likely ask you whether it's something we could improve with a change (or addition) in personnel or if it's the result of a faulty assumption. Note, on personnel matters, there is sometimes an aversion by CEOs to thinking critically about their team members. Instead, consider yourself the coach of a sports team. If someone in position X isn't working out, that's not a problem to hide, but an opportunity to upgrade. Your investors won't think less of you because you took action to make the team stronger. Often with earlier stage startups, it's about adding people, rather than changing them.

Finally, MD&A is the place to call out the thing that need to be said. There is a risk of falling into a routine of providing detailed and excellent reports of your company's march westward. But what if the right course of action for the business is to head east? If you never pop your head up from measuring your progress putting one foot in front of the other, you risk marching your company off a cliff because you're strategically headed in the wrong direction. Pop your head up.

Cash and burn

Just as a pilot always keeps her eye on her altitude, it's almost always a good idea to note the company's cash position, recent monthly burn, and estimated runway.

Your estimated runway may not be equal to cash on hand divided by last month's burn rate. Your plan might anticipate future hiring or future revenue, which might add or subtract from planned future burn. It's best to just be transparent about disclosing all three figures: burn since the last update (typically expressed as a monthly rate), cash in the bank at the end of the period, and estimated future runway.

A venture capitalist will be expected by her partners to know at all times what the approximate cash, burn rate and runway remaining is for each of her portfolio companies. If you don't tell, expect to be asked.

You might also want to include a "Default Dead / Default Alive" calculation, if that's your cup of tea.

Put numbers in context

When an investor decided to invest in your company, she or he did so in part because of a belief in you and your team's ability to execute against a plan. These regular updates give your investors a sense of how we're doing against the plan, and how the plan may need to change. If you don't have an agreed-upon plan with objectively measurable goals for the year, it's hard to put your updates into any sort of context. Your investors will view the update in the context of a plan they imagined for your startup, which could be different from the plan you're imagining. Don't leave plans to imagination – write them down.

You should also put numbers in the context of their period-over-period change. Depending on the stage of the business, this could be month-over-month, or year-over-year.

Examples of putting your metrics in context:

• "We did $23k in MRR last month, +8% m/m, 90% of plan."
• "Our CAC last month was $40, vs. $27 plan, +$11 m/m, due to more advertising competition during the holiday season..."
• "We shipped 1 new integration last month, bringing our total count of enterprise integrations to 3. We remain on plan to have 6 major integrations live by the end of Q2."
• "We onboarded 5 new sales people last month, vs. plan of 6."
• "Net Revenue Retention reached 114%, approaching plan of ≥ 115% and up from 110% last month."

What if your updates have a monthly cadence, and you prefer to talk about metrics in the context of a quarterly cadence? That's fine, just be honest. "QTD, we've booked $0.6 mm in ARR, 50% of our $1.2 plan with 1 month left to close the gap."

Avoid wishful thinking; be honest and pragmatic in your assessment of numbers. Investors generally prefer working with entrepreneurs who are ambitious and who can be believed. Hope is not a strategy.

The attachment

It's best to keep the key points in your email, rather than in an attachment recipients might not open. That said, monthly or quarterly financials are best handled as an attachment. Typically this financial reporting package includes the three basic financial statements of any business: an income statement, cash flow statement, and balance sheet.

Most equity investors enjoy information rights requiring you to share these financial statements with them on a monthly, quarterly or annual basis. If you have any venture debt, you're probably required to share the package with your bank (lender) quarterly or monthly, so you might as well include it when updating your board or major investors.

When a private equity firm takes a majority (aka "control") position in a business, the reporting package from the portfolio company is typically more detailed than one might see for a venture debt loan or a typical VC report. For example, the PE "sponsor" may require both a "natural" and a "functional" income statement (a useful exercise, particularly for benchmarking purposes). More interestingly, top-tier PE sponsors like Vista Equity or Thoma Bravo will often also require other "operating metrics" in their monthly reporting package (often within 10 days of month end). Beyond the basic financials of money in, money out, these monthly operating metrics are likely to include:

• Sales productivity, most likely in the form of bookings, perhaps segmented by channel of bookings (e.g. direct vs. channel) or nature of bookings (e.g. product X bookings vs. product Y bookings); number of "productive" reps and the percentage of sales reps who are performing at or above, say, 80% of quota YTD
• Pipeline, likely expressed both on an absolute basis (in dollars) for each period (i.e. the expected close date of the pipeline, not just a big total) and on a coverage-ratio basis for each period (i.e. pipeline dollar amount relative to the bookings plan for the future subject period – many SaaS startups target a 3x coverage ratio)
• Marketing, likely expressed as a dollar amount of marketing-generated bookings in a SaaS business or marketing spend and per-user CAC in the subject period for a consumer business.
• Customer retention, broken down by factors contributing to net retention (e.g. up-sell, cross-sell, down-sell, cancellations, bad debt), and indications of both gross and net dollar revenue retention, usually presented in an annualized fashion (i.e. instead of presenting gross churn as 0.9864 for the month, present it as 0.9864^12 = 0.848% annualized).
• Talent, such as headcount changes by department and/or geography, average base salary per FTE by department, average base salary for new hires, and rates of voluntary and involuntary employee attrition
• Other operating metrics, like NPS score, CSAT score, tech support hold time durations, uptime/availability metrics, etc. These will be specific to your business, for example, a payment issuer business might report card activation rate and fraud loss rate.

Some view it as a benefit that early- and growth-stage minority venture investors do not place the same onerous reporting requirements on their portfolio companies as do PE firms like Vista, but I think that's a mistake. Strong operating and financial acumen is an important facet of properly managing a business.

As your startup grows beyond the Series A stage, expect investors to become more financially oriented. Usually, responsibility for creating the reporting package falls on the shoulders of your finance leader. Many startups are slow to hire finance leaders, which is usually a mistake. Having a strong VP Finance or CFO will take a tremendous burden off your shoulders as CEO (making this hire could be the subject of an entire post!).

Templates

Here are a few templates to consider from around the Web:

• Y Combinator investor updates
• Minimum viable investor update, by Jens Lapinski
• Standard investor update template, from Visible

Tactical recommendations

Cadence

Determine the cadence appropriate for your business: quarterly, monthly, or more regularly (rare). The cadence should match the cadence of your sales and product team goals. Do your sales reps have a monthly quota? Do you hold a monthly all-hands meeting to review progress? Then it's a good idea to send a monthly update. As a side benefit of aligning the cadence this way, you'll be able to re-use content between, say, your all-hands meeting and your investor update. The most important answer on cadence is to commit to one and stick with it.

To vs. BCC

If sending to fewer than, say, eight people, put the recipients in the "To:" instead of the "Bcc:" field. This has several benefits. The recipients will know who else received the update. If you're using certain email software, you'll know who read it. And seeing the names of your teammates / partners places a subtle pressure on each of them among their peers to support the company.

Use hyperlinks

Hyperlinks are your friend. If mentioning a new hire by name, link her name to her LinkedIn profile. If mentioning a new customer or a list of prospects, link to their company sites. If referencing an internal work product (e.g. a presentation or plan), consider linking to it. This makes it easier for your audience to "deep dive" on things they care about, and may help you keep the email shorter.

Send at the end of the week

I recommend sending your update shortly after the end of each period (e.g. monthly or quarterly). Often it may take a short while for the "dust to settle" on the numbers you want to share, which is fine. Many investors have a weekly meeting on Mondays with their partners where the progress of portfolio companies is discussed. By sending your update out on a Friday (0r last day of the week where you live), you may feel a sense of satisfaction capping off the week, reducing your stress heading into the weekend. You are likely to receive any questions on Sunday as investors prepare for their Monday meetings. VCs are likely to forward your update inside their partnership, with their own color commentary added.

How to ask for help hiring

If you're asking investors to help with a hire, make it more easily actionable for the by including an easy-to-forward link to a job description (which should start off addressing the "so what?" question of why a candidate for the role should care about the opportunity), a clear understanding of how a candidate should "raise her hand" to indicate interest, and a cut-and-paste "blurb" describing what the company does and why a candidate for the role should care (remember, nobody cares about your company as much as you do). Without these things, the ask isn't easily actionable.

How to ask for a customer introduction

If asking for a customer introduction, be as specific as possible. For example, instead of asking for an introduction to Company X, you should probably make clear that you want to reach someone in a particular role at that company for whom your product's value proposition would be directly relevant. A cut-and-paste "blurb" about your company will be helpful. When pitching a buyer at Company X, consider including 1 or 2 relevant examples of existing customers similar to Company X. This sets up the board member or investor to be perceived as "adding value" to his or her contacts at Company X, rather than "asking for a favor," because the customer intro will have the context of how your company is already benefitting Company X's peers in the industry. If you ask your board member for a customer introduction, expect to handle any successful follow-up yourself, not delegate to a sales rep. And if you're fortunate enough to get the introduction, be careful about replying to the contact at Company X with your Calendly link – always treat the contact at Company X like their time is more valuable than your own. Finally, don't ask for introductions to a company where you're already engaged, unless the relationship is stalled and you want help "unsticking" it, or where you want to add "executive cover" from higher up in the organization.

Is it worth buying a tool?

Using a tool like Visible.vc is like buying expensive gym equipment - if it helps you get excited to exercise, great. But you can exercise without fancy equipment, too.

How might investors reply to the update?

Generally in my experience, investors replying to your update fall into one of two camps:

• Cheerleaders will typically reply-all, congratulate you on an awesome quarter or month, and say little more of substance beyond looking forward to seeing you at the next board meeting.
• Questioners will typically reply 1:1, and ask a handful of pointed questions to better understand the update.

Cheerleaders will seem great at first. "Congrats on this amazing progress! 😍😍😍 Excited for next month's board mtg! Keep up the great work!" You think, terrific, I am doing a good job as CEO, my investors love me. I must be awesome. But what value is really being added here, other than encouragement? Remember, investors are a service founders purchase with their equity, which is very expensive. Is encouragement really the best service your equity can buy?

Questioners will usually try to ask some questions in response to an investor update. At first this could seem like they're being critical. But remember, at this point, the investor is already on your cap table. They are on the train, and the train has left the station – there is no going back. So hopefully their questions come from a place of wanting to better understand the challenges facing the business so they can help you and the team get where we all want to go. Good questions help by placing focus on something an investor thinks should be a priority, by shedding light on an opportunity or problem, by reframing a challenge in a helpful new way, or simply better understanding the drivers behind a recent result.

Some questioners will respond 1:1, while others reply all. Generally, the 1:1s are much easier to handle, but the reply-all's have their place. The investor dynamics among the different investors or board members you are updating are like any other human communication challenge with multiple points of view and personalities. Suppose you share in your update that you recommend taking some bold action. A quick reply-all from a supportive board member aligned with your point of view may help cement support for your recommended course of action.

If an investor always asks you a question about something that's missing from your regular update, consider two approaches. First, just start reporting that thing in your regular update. For example, if you fail to include burn or marketing spend in your regular update, and the same investor always asks about it, try adding the metric to all future updates – problem solved. Alternatively, have a candid conversation with your investor about why you think the item in question is unimportant. After the conversation, if you decide the investor is right, include it in your update. If you decide it's not important to track for now, agree to exclude it or, at minimum, to revisit the matter in x months/quarters down the road.

My take

I've been a founder of startups for twenty years, and an investor in them for nearly as long. As I reflect on how my investor updates changed as I matured, the biggest difference in my later years was trusting my investors to stomach bad news and help me solve problems as partners, rather than trying to sugarcoat things. I also learned to lean on my executive team, mostly my CFO, to bring rigor to our monthly reporting process. My experience running Upserve inside the Vista Equity portfolio prior to its sale to a public company in 2020 gave me a deep appreciation for the ways PE investors think differently from traditional VCs. While in my heart I am design-oriented product guy, I learned to love understanding my business through its numbers, and seeing how the hard work of everyone on our team could push our company in the right direction.