Past few weeks at LetsVenture have been a eye opener. When you work at a company, which is India’s most trusted and biggest platform for angels and startups to interact, you get to meet and interact with kickass entrepreneurs and inspiring angel investors; people who are doing cool stuff and people who have been there & done that.
A constant question we ask ourselves and relevant stakeholders is how do we add value to startups and investors? What is the biggest pain point? What problem can we help solve?
To be honest, I was surprised when a recurring theme in our interaction with angels was investor reporting. Almost every investor when asked – “What is your biggest pain point post investment?”; answered – “ Investor reporting”.
To paraphrase a marquee angel:
“It is not funny how often the only time I hear from a startup is when they want me to sign something or they want more money. They just call up and ask, “We are short on cash, can we have another Rs. 10-15L?”
That or angel investor gets to know that an investee company just closed a round that they weren’t invited to and legally should have been.
Jason’s Rule of Startups
“If your startup isn’t sending you monthly updates it’s going out of business.”
These types of things happen every day, more often than we think. To reiterate, there is nothing that frustrates an investor more than poor or non-existent communications from the startups.
To understand ground realities asked founders why they don’t send investor reports. Most common reasons were:
1. Founders didn’t know they needed to send an investor report (well, it is part of SHA and as founders you are legally bound to report to investors)
2. They didn’t know the upside of sending an investor report (we give founders benefit of doubt, but only so much)
3. They have never been told or shown what to put into an investor report. Actually there are not many examples on the web of good investor reports. So rather than getting it wrong they just don’t send any. (Setting metrics to judge your business is a challenge, we believe this is first thing investors and founders should agree on post funding)
4. It takes too long to gather the information. Founders believe the few hours it would take to get the information for the report is better spent working on the business or connecting with investor over call / coffee. (Did you factor in the time you are wasting by repeating same conversation over and over with every investor? Or rather every stakeholder in your startup?)
5. Founders think investors only want to hear good news so they are waiting until they have some. (Agreed, no one wants to send a bad report.)
To be honest, none of the reasons above should stop you from sending monthly / quarterly reports. Fact is that investor communication is not just one of the most important jobs a founder can do to keep investors excited and engaged; it is one of the easiest and the most under utilised.
So whatever reason (or excuse) you may have, including nothing to report, as a founder you need to be disciplined in sending reports. There are a lot of upsides of sending regular updates to your investors.
1. If you’re not sending the report because you’re ashamed of how bad your startup is doing, you’re making a big mistake. Angel investors understand building a business is hard, but they can help only if they know what’s going on. Sharing your current challenges allows the investors to help and activate their network. You will be surprised how well they are connected. Enable them by sharing information.
2. If you are going for a follow-on round, your early supports will serve as backers and their endorsement will be crucial to demonstrating your worth to new investors. Almost nothing works better than happy investors; they will bring other to party. Again, remember they also have VC connects.
3. By preempting inbound inquiries, you can write one update for everyone rather than communicate in parallel when the questions come in and hence save time. It also helps you judge your efforts and focus on building company.
4. Informed investors talk more often about their investments. They will be able to pitch you to their network and in appropriate forums. They will directly / indirectly help build up momentum for you.
5. If things are going well then regular reporting metrics to existing and potential investors allows you to create entry barriers for your competition.
6. If things go sideways and you need incremental cash, your investors will be more likely to offer additional support if the request for cash isn’t the first they’ve heard from you since the original check. Raising follow-on money from existing lukewarm investors is painful and embarrassing.
Investor reporting has become all the more important in today’s day and age. Startups can launch a product in a couple of months. Competition is fierce and there are many more startups out there attacking the same problem. Post your seed funding you will be under pressure to scale; Series A is a very big cliff, success rates are anywhere between 27-30%. Market is robust; it becomes clear quickly if something isn’t working. Which means you will either have to hit Series A metrics (in next 12-18 months) or might need to do a minor or major pivot in your first year. In either case, working with your investors means you are truly leveraging your team.
Finally but most importantly, it’s the right thing to do. Angels bet on you with their hard earned cash, and generally only hold you to a standard of doing your best to make it work — they’ll understand if you are honest, try hard and fail. The least one could do is reward them with some satisfaction by engaging – financial returns are not their primary objective.
1. Start sending monthly reports to your investors
2. Keep it short, simple, straight – ask if you need help!
3. Unicorn or not, you will be glad you did this