Think of investor reporting as the foundation of trust between a company’s founders and its investors. That trust is earned over time and is strengthened by timely reporting of company results. Strategic entrepreneurs will see good investor reporting is both the foundation for a company’s success and an entrance to later investing. Done correctly, early investors become referrals for later investors and, when properly incentivized, future investors as well.
Here’s how to provide any investor with information that shows the value of his or her commitment to your company through quality reporting:
Start with consistency
Investors should receive the report at the same time every month or every quarter or every half year — whatever frequency you deem necessary. This demonstrates that the business is under control and that the metrics discussed can provide better support for the materials presented — that is, investors are more likely to trust reporting that they receive on a timely basis.
Know what to include
A solid investor report should consist of a review of critical key performance indicators (KPIs) and the money situation (more on those later), funding updates and any other general information. These critical aspects should also relate to an overarching company story that looks beyond the period information.
Your organization’s vision and mission don’t change; it doesn’t matter how many times you pivot in your particular market. Certain constant aspects of the company transcend the details of any period. This baseline helps investors see the company is maintaining its strategy while making the decisions needed to assure the company moves in the right direction.
Make it fun
Draft an investor update you would want to read yourself without nodding off. Even during market declines and setbacks, the report should be an easy read, needing no more than five minutes to digest the high-level information. Make sure your executive team’s contact information is in there somewhere for those investors who want to connect for a more thorough run-through of the details.
Don’t deluge investors with data — find your four KPIs
When pulling from your company’s tracking data, focus on what will get the investors excited about “their” company, and drop anything extraneous. The KPIs can change from report to report, shifting with the trends. Explain why the numbers matter in an easy, straightforward way.
Critical startup KPIs may include:
- Customer acquisition cost (CAC)
- Average revenue per customer (ARPC)
- Long-term customer value (LTCV)
Of course, your startup may find other KPIs that make sense to share.
When covering the money situation, avoid giving too much information
Naturally, cash-in-bank is always a consideration for startups, and surprises around the state of funding should be avoided. Telling investors that you have exactly three months of operating capital as a runway, however, is probably too much information. Share the state of the balance sheet without surprising them with the fact that you are now out of money. Your best chance to get a new check is from an investor who is satisfied with the results of their earlier investment. All early investors are potential later investors — even when they say they are not.
Explain where the company is and where it’s headed
General updates may be anything that helps tell this story. You should not try and hide company warts but, in general, you will have many successes you can highlight instead.
Remember, funding updates are always important
Let your investors know there will be an opportunity for them in the new round. You know their investment thesis and can offer a product that meets their risk and return profile.
Many times, an investor only invests in the early stage. Consider them gold. Ask them for testimonials about the investment’s performance. Even an investor who hasn’t seen a return of capital will be impressed with paper returns when a company hits its projected metrics. Recruit these individuals as allies to help you get meetings for later investors.
Key takeaways on investor reporting
Make good investor reporting the foundation of trust between your company founders and investors. The investor update should be considered marketing, yet always factual. The moment you lose investors — the moment they don’t believe the information provided by the company is trustworthy — you have lost virtually irreplaceable elements of the relationship that may never recover and even poison future enterprises. Always come clean, but paint an upbeat picture. Remember, the road to startup success is long, and there are both successes and failures ahead.
Originally published May 26, 2021.