One of the key things that Techstars companies do during the program is engage mentors.
This ongoing, weekly engagement is important for creating cadence, and getting the most out of the program. To set the pace, companies send their mentors weekly updates that include progress and asks.
After companies graduate, we talk to the founders about continuing to send similar updates, but now to their investors.
Mark Solon, my mentor and Managing Partner at Techstars, says that sending regular updates to the investors is one of the most important things that CEOs need to prioritize. Below is a paraphrase of why Mark thinks the updates are so important.
Why send investor updates?
First and foremost, sending regular updates to the investors creates cadence and allows CEOs to execute against goals.
At a high level, after raising a seed round, most startups will aim to raise series A. The question is, what milestones does the company need to hit to be able to raise? Once series A milestones are determined, the team can work backwards to determine monthly goals and milestones. In other words, the team figures out a trajectory that, IF followed closely every month, gets the team to Series A milestones.
Investor updates are actually a tool for the CEO to help align the team and execute against set goals.
Secondly, sending investor updates follows basic business etiquette and common sense—the investors who gave you money want to know what is going on with their investment.
Lastly, and perhaps most importantly, is keeping investors in the loop. This is critical to get their support in the future.
If you raise money from investors, and the next time they hear from you is 12 months later, when you are out of money or need an introduction to another investor, it is likely they won’t be happy and won’t be willing to help.
The reality is that most seed companies have a hard time reaching series A, and end up raising an extension, or second seed. The first capital into that new raise typically comes from existing investors. This means that the very people who supported you the first time now have to decide if they should support you again.
The support of your early investors is absolutely critical, because the lack of their support is a negative signal.
It is important to understand the following dynamic: Say you are a founder going out to raise your second seed round. You approach a brand new investor. One of the very first questions this new investor is going to ask you is—are your current investors supportive? Will they be putting in more money? If the answer is NO, it is a red flag.
Putting it all together—investor updates are critical for CEOs to be able to execute, just plain common sense good practice because people entrusted you with their capital, and are absolutely critical for follow-on financing.
How often to send investor updates?
The best practice after you close the seed round is to send the updates every four to eight weeks.
Sending updates weekly may be too frequent. You don’t want to be the noisy company that constantly floods the investor’s inbox. If you do this, people will tune you out.
On the other hand, you also don’t want to wait too long to send updates. If you send them say, once a quarter, then it may be too long of a gap for investors to a) remember what is going on with you and b) be able to help you accordingly if things go in the wrong direction.
Engaging investors via brief, quantitative, and actionable updates every four to eight weeks is going to get you the right amount of attention and engagement.
The format for investor updates
Not only do you need to get the frequency of the updates right, but also you need to get the right content in there.
I’ve seen plenty of lengthy updates that contain paragraph after paragraph without any numbers or any asks. I honestly think that this kind of update is a waste of time.
Investors are busy and are not likely to read text-heavy updates, and, more importantly, are not likely to act on it.
To make updates engaging and actionable they need to be clearly presented, mostly as bullets, numbers, and asks. Here are the sections that are good to put in:
KPIs – summaries of progress against key metrics you set. Include changes and graphs to help people understand the trends over time.
Asks – this section is critical, so put it in early.
The best CEOs engage investors and put them to work.
Updates are not a one-way reporting operation. The best updates contain clear, specific asks for help, so that investors can actually make an impact on your business. Investors love it when you ask them to do work.
Also, use a trick of @InvestorName to call on an individual investor to help you with a specific thing. When you don’t call on people, sometimes no one takes an action because each investor thinks that someone else will step up. Call on people to help with different things, or post questions to specific people, and you will become awesomely engaged with a group of investors.
Finances – revenue, monthly burn, runway—this is just good hygiene and common sense.
Wins and Struggles – bullet list summaries of key things that went well and things you struggled with. With the struggles, engage investors and ask questions. Don’t hide bad news from your investors.
Misc/Admin – bullet list of catch-all things you want to communicate.
Shout outs – another really important section. Call out investors who helped you since the last update. This creates a positive dynamic where other investors feel compelled to step up. In general, it is a good idea to thank people who are helpful.
Also read these excellent posts on the topic by Ty Danco and Dharmesh Shah.
Please leave feedback and let us know what works and doesn’t work for you with your investor updates.
Image Credit: CC by Pixella Photo
