Writing Investor Updates - FAQ
At Quandl (the startup I co-founded), we did not send out regular investor updates until after our Series A. This was a big missed opportunity for us; I strongly advise you not to make the same mistake.
Why should I send investor updates?
Good investor updates accomplish two things: they are a management tool for your own benefit, and they help establish your credibility with investors.
First, the exercise of writing a good update every month forces you to understand your business, landscape, metrics, drivers, challenges etc. really well. Over time, this gives you perspective and also helps with priorities – what’s important, what’s just noise, what’s working, what’s not, and so on. It’s worth doing this even if you never send your updates to a single person.
(A bad update does not accomplish any of the above. If you find that you’re not getting value out of the process of writing your updates, it probably means you’re not writing them well.)
Second, regular updates maintain your credibility with current investors. Both the quality of help you get, as well as their willingness to help, are strongly correlated to the quality and frequency of updates you send out. Your investors are a valuable resource you should use (advice, intros, cash); good updates maximize your use of this resource.
How often should I send out investor updates?
Once a month, shortly after the beginning of the month. Quarterly is too infrequent (startups change faster than that) and weekly is too frequent (too much of a burden on founders, and you miss the forest for the trees).
The key is to not take too much time writing your updates. A 3000-word email that arrives on the 20th of the month is not as useful (for either investors or founders) as a brief summary that arrives on the 1st or 5th. In steady state you should be able to produce and send this email in less than 1 hour of your time. The ROI of that 1 hour is very high.
How candid should I be in my investor updates?
A common mistake is for founders to treat their investor updates as a continuation of their investor pitch. When things go wrong – and in startups, things are always going wrong – updates written this way become intentionally uninformative or obscure.
I get it; some amount of pitching is natural and maybe even necessary. Even with investors, you still want to put your best foot forward. But if your updates are full of irrelevancies while avoiding actual issues, your investors will recognize it, and, more likely than not, think that you’re in denial.
My favourite founder update in recent times began like this: “Well, that was a pretty crap month.” That kind of transparency builds a lot of trust.
The other reason to be candid is simply this: investors want to help – and they can’t help if they’re not informed. If you have to brief them from scratch every time you ask for something, it’s ineffecient and leads to low-quality input. It also precludes “serendipitous” help – eg. an investor reads your update, and although there’s no explicit ask, they reach out because something in there sparks some thoughts that might be relevant.
The absolute worst option is radio silence. There’s no quicker way to have your investors write you off. Trust me, as an investor, I’d much rather learn about your challenges and problems and bad news early, so that I can try to help you fix them, rather than stay ignorant until it’s too late.
What should I include in an investor update?
The essentials are a summary of the business, your latest KPIs, your current set of opportunities and challenges, and your asks of investors.
Which KPIs? I like to see:
- business north star (usually, some sort of usage metric)
- revenue and revenue change
- burn and burn change
- cash in bank and runway
In addition to these essentials, you can optionally include functional or team updates, industry updates, strategic musings, whatever else you want.
Here are two templates for update emails you can use:
Btw, don’t assume that verbose and detailed is necessarily better – do whatever fits your own communication style.
What should I NOT include in an investor update?
I sometimes see founders send “marketing updates” – aimed at their customers – to their investors. Don’t make this mistake; these are two completely different things. Same goes for drip campaigns and nurture.
Some founders are hesitant to include revenue and other KPIs in their updates. Personally, I find that an update without revenue, growth, burn and cash rates is of limited utility – it doesn’t help me understand the health of the business, and without that understanding, it’s hard to offer good, calibrated advice. So I do advise including them. But if it makes you feel better, put a disclaimer saying “confidential, please do not share”.
(Ultimately, it comes down to how much you trust your investors.)
I wouldn’t include any valuation numbers or fund-raising target numbers in an investor update – remember, your future investors may (and often do) ask for all your letters as part of their diligence, so be thoughtful about that. Also, don’t include anything that is truly secret sauce. In any case, most investors won’t understand or care about the technical details.
I’ve never sent updates in the past, and feel awkward about starting now. What should I do?
Don’t overthink it. Just add a line at the beginning saying: “Although we haven’t done so in the past, we’ll be sending regular monthly updates from now on. Here’s the first one.” And don’t feel obliged to constantly fill in your investors on the last 6 or 12 or 18 months of progress. Monthly updates should reflect monthly events. (Maybe in the very first update, you can have a section called “highlights of the last year”, but that’s about it.)
Are there any exceptions to the above guidelines?
These guidelines are for pre-seed and seed stage companies. Once you’ve raised a Series A and have a formal board, all of this becomes obsolete and will be replaced by whatever communication cadence you agree upon with your new investors. (But many of the habits you develop via these updates will serve you well at that time).
Do you think it’s worthwhile to add potential investors who aren’t in this round to our investor updates?
(For example, we’ve been introduced to a few A firms, or Seed & A firms, who have not invested in this round but want to stay updated. Do you think we should add them to investor updates or keep it more personal and just check in every once in a while?)
I would not add them to the standard monthly investor update, but instead send a more personalized update once every 3-6 months or so, to a selected subset of investors who you really like and who you think would be strong candidates for your next round. Longer answer here.
Should I send updates to friends and family investors?
If they’re not experienced startup investors, I would send just a quarterly or even annual update, just to keep them in the loop, and not expecting any response or input or help. Experienced startup investors are fully aware of the challenges that almost all startups go through, and are not fazed by bad news; indeed, they want to hear it early. But friends and family, who are betting their hard-earned savings on you personally – I understand that you may not want to spook them. (This, like much else, is ultimately a judgement call.)