A Peep Into the Components of Investor Updates
Fundraising is a serious endeavour, but the work doesn’t end once you cash the checks. In fact, it’s quite the contrary. It’s absolutely vital to regularly update your investors, even long after the initial investment.
Investors need these updates to understand the health and growth of your company, and to see how they can help. Updates are also a way to keep a steady relationship with them should you ever need more money in the future.
We at GetFundedAfrica have seen thousands of investor updates, and we have seen it all – great updates, terrible updates, and the most common: no updates at all. This frustrates us to no end because writing an outstanding update is simple.
Like you, investors are busy. Asking them to peruse long and complex sets of information is a quick way to get them to disengage.
The ideal investor update is a short email from the CEO, with a simple subject that includes the company name and timeframe. It should be delivered in plain text and without graphics (unless you are including charts).
To put it simply, investors want to know three things: (a) how the business is doing, (b) how long it can survive, and (c) how they can offer more support.
Therefore, the simplest way to write a first-rate investor update like the one above is to cover four sections: (1) Overview, (2) Performance, (3) Economics, and (4) Needs.
Let’s go through each section in detail:
Section 1: Overview
Start the overview with two short paragraphs to describe the business’ health. It should have enough information for investors to make informed decisions on how to support your business.
If things are not going well, be very clear about what the problems are in the overview. It is OK to disclose a lost deal or the departure of a team member. It is OK to say that you are running low on funds.
Section 2: Performance
The five aspects that an investor cares about performance-wise are (1) Runway, (2) Team, (3) Product, (4) Traction, and (5) Fundraising.
Your investors will understand when you face challenges, so don’t try to hide them. The performance section should start with a one-sentence overview, followed by a 1 to 5 assessment of each of the five categories. We strongly recommend leaving 3’s out of your evaluations because it will force you to be honest in your self-evaluations.
It is also useful to indicate whether the category’s assessment has increased, remained equal or decreased since the last update, and then provide the previous value.
Section 3: Economics
Most successful startups religiously follow a few metrics concerning their business which are commonly referred to as “key performance indicators” (KPIs). The company should track these metrics internally on a regular basis. That way it is easy to share those indicators in the investor updates.
KPI tracking metrics can include three types of weekly numbers: (1) additives, 2) cumulatives, and 3) ratios. Additive metrics are the absolute number of new items since the previous week. Cumulative metrics show the total number of items at the end of the week, minus churn or loss. Ratio metrics show the percentage of measurements compared to other measurements. A rule of thumb is to include at least one additive or cumulative metric with one ratio for a good summary of the economics.
We recommend that you use revenue if you are struggling to find the best KPI for your business. If you are pre-revenue, then counting your potential customers (such as users or leads) is a useful metric. Similarly, just like the performance section, the economics section should start with a one-sentence overview, followed by four to eight weeks of KPI data.
Section 4: Needs
For a founder, the “needs” section is an essential part of the investor update. This is where you ask your investors for specific support. There are three types of asks: (1) assistance, (2) referrals, and/or (3) funding.
- Assistance means asking investors for advice, reviewing materials, or something similar. For this portion of the investor update, include any reference material and a link to set up calls with you using a service such as Calendly.
- Referrals mean asking your investors to refer a customer, a new hire, or another investor. For this, you should always include a sample email for the investor to forward.
- Funding is about asking your investors to participate in an upcoming funding round.
Read Also: Understanding What a Financial Model Is: For Startups
How Frequently Should You Send?
Investor updates need to be sent out at least once every month for the first 24 to 36 months. The ideal frequency is either every two or every four weeks. Not sending updates or sporadically inconsistently sending updates will make you and the startup appear unprofessional.
Eventually, you will need your stakeholders and investors to do something: maybe make an introduction, approve an acquisition, or invest more capital. You do not want the first time that they hear from you in months to be that request. Instead, you want them to receive consistent updates to know about your business and to be ready and eager to assist when the need comes.
The frequency of your updates depends on the frequency of your needs. If you are raising a round or need external help, then you will want to send updates every two weeks. If the business is growing and you do not need much assistance, then stick to a monthly update schedule.
Pick a schedule for your updates, and stick to it Investors know that you are a startup founder, so they will understand if an update is missed or late. That said, do your best to remain consistent. If your content is strong and clear the updates should be easy to write and take no more than five minutes to complete.
GetFundedAfrica is building Africa’s largest tech-enabled marketplace which connects African founders with global mentors, coaches, corporates, investors, and government. Whether you want to raise funds ranging from $100, 000 to $50m or you simply want to grow your business, sign up for free at: www.getfundedafrica.com