How do you encourage investors to create value and tee up for the next funding round in the most efficient way? Keeping investors up-to-date on what is moving and shaking in your startup business comes with great benefits. These include trustful relationships, performance focus, strategic perspective, efficient meetings and receiving help. Yet it seems to be more the exception than the rule among early-stage startups to maintain an investor newsletter making investor relationship management a very underrated skill.
It doesn’t matter who you take money from if you don’t encourage investors to put the smart in smart money. At the same time, this is an opportunity to build trust with existing investors and create appetite for the next funding round. If you decide to hack the fundraising process by distribute updates to potential investors as well then you may even get some smart without the money.
Writing Great Investor Updates
Do not confuse an investor update with the financial reporting that most Venture Capital funds require of portfolio companies. Investor updates are all about creating value and growth in the business, not reporting the financial output.
The best practice is to send updates monthly for seed, bi-monthly for series A and quarterly for series B stage companies. Writing the update itself shouldn’t take you more than one hour once you have the recipe down and get into the routine. The more often you distribute, the faster it will be to produce.
I recommend starting each update with 2-3 sentences that summarizes what has happened since the last interaction followed by five sections: asks, lowlights, highlights, performance and kudos. It is important to be brief, precise and consistent.
- Asks: what do you need help with?
- Lowlights: what are the bad news?
- Highlights: what are the good news?
- Performance: what is the status on KPIs, cash in bank, current burn and runway?
- Kudos: who deserves recognition for helping?
For the lowlights and highlights consider what has happened within key areas such as recruitment, sales, marketing, product development, partnerships, milestones, financials, fundraising, press etc. The most relevant KPIs for the performance section are unique to the business model and industry so spend time on choosing the right ones.
Finally, giving intrinsic rewards in the kudos section will improve the likelihood of people taking action on the asks and reveal who is actively contributing to the development of the company and who is just along for the ride.
Turbocharge the Investor Update Process
One trick is to reply to the first e-mail update when sending the next to create a chain of previous updates. Another is to use collaboration tools such as Google Docs or Dropbox Paper enabling everyone in your team to add their piece simultaneously or when it’s convenient. Setting a reminder will reserve the time in your calendar and ensure that you don’t forget. For a seamless process, I recommend developing a template that you can populate with fresh numbers and narrative each time.
It’s important to include both current and historical data points for context when depicting KPIs and preferably in graphs. You can easily get organized around that by utilizing live dashboards such as Geckoboard, which already should be front and center at the office. Also, try to play with public deadlines by communicating what investors can expect to see from the next update.
Now that you have developed a killer update for existing investors consider distributing a modified version to potential investors. Nurturing investor relationships when you are not raising capital is so much more credible and keeping them in the loop while you are raising will make for an efficient fundraising process.
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