Fundraising is a serious endeavor, 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.
Since 2009, we at the Founder Institute 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.
The 5 Minute Template
Like you, investor 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) like the example below:
To put it simply, investors want to know three things: (1) how the business is doing, (2) how long it can survive, and (3) 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.
- Sentiment: Open the first sentence with the general business sentiment, such as "it has been a busy time," "things are going well," or "we have faced some setbacks in our plan, but are working to fix them." This sets the tone for what is happening at the company and prepares the investor(s) for what to expect.
- Initiative: In the next sentence, describe the company's current major initiative, and provide a brief update on its progress. Keep these consistent between sequential updates.
- Ex. "We have been working to close our first major license with IBM, which will get us to cashflow break-even, and we have exchanged a final draft of the agreement this week."
- Ex. "Morale is high as we're closing an exciting licensee, just hired a new senior developer to manage the integration of the license, bringing our tech team to 5 full-time employees."
- Industry: In the second paragraph, open with a brief overview of the industry and competitive landscape. It is helpful for investors to know what is happening on the broader market, since they may not be domain experts.
- Ex: "Gartner just published research that the market for our server technology will grow to $1 billion within five years. Our closest competitor just raised a small seed round of $1.2 MM."
- Ex. "After closing our seed round in December, the company has 12 months of runway with our full hiring plan, and we can cut back the hiring to survive 18 months if the IBM license fails to close."
- Ex. "If you know anyone in the server business at IBM, please send us their Linkedin profile so that we may reach out to help close the licensing deal."
Following this structure for the overview will clearly portray the business's health, which is what the investors want.
Here is a sample Overview Section:
"It has been a busy time. We have been working to close our first major license with IBM, which will get us to cashflow break-even, and we have exchanged a final draft of the agreement this week. Morale is high as we work to get the license done, and we just hired a new senior developer to manage the integration of the license, bringing our tech team to 5 full-time employees.
Gartner just published research that the market for our server technology will grow to $1 billion within five years, and our closest competitor just raised a small seed round of $1.2 MM. After closing our seed round in December, the company has 12 months of runway with our full hiring plan, and we can cut back the hiring to survive 18 months if the IBM license fails to close. If you know anyone in the server business at IBM, please send us their Linkedin profile so that we may reach out to help close the licensing deal."
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 on 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. Read why the Founder Institute has a "no threes allowed" policy here.
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.
- 1 = less than 2 months
- 2 = 2 months to 6 months
- 4 = 6 months to 12 months
- 5 = more than 12 months
- 1 = recent team losses and / or morale problems
- 2 = no hiring and no change in morale
- 4 = actively hiring with strong candidates, limited losses and good morale
- 5 = recently hired strong candidates and/or strong morale with no losses
- 1 = setbacks with the offering
- 2 = no recent progress with the offering and a limited development pipeline
- 4 = ongoing offering progress with a solid release pipeline
- 5 = recent major releases and/or a strong release pipeline.
- 1 = slowing or no usage with slowing or no sales
- 2 = stable usage and stable sales
- 4 = growing usage with stable or growing sales
- 5 = fast-growing usage and fast-growing sales
- 0 = not fundraising and no need to fundraise for six months with a 4 or 5 on Runway
- 1 = need to fundraise without available time, resources and materials ready
- 2 = started fundraising with limited progress and interest
- 4 = fundraising underway with initial investor interest and tentative commitments
- 5 = fundraising underway with a keen interest and multiple commitments with documents signed and/or investments wired
Here is a sample Performance Section:
"We have accelerated Product, which has come at the cost of slowing down our traction until the IBM deal closes.
1 to 5 Performance Ratings:
< 2 (4 Last) - Runway
> 5 (4 Last) - Team
> 4 (2 Last) - Product
= 4 (4 Last) - Traction
= 0 (0 Last) - Fundraising"
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.
Metrics to include in economics may include::
- Runway: x months
- MRR: $xx,xxx (+-x.x%)
- ARR: $xx,xxx (+-x.x%)
- Net profit/loss: +-$xx,xxx (+-xx.x%)
- Ending cash: $x,xxx,xxx (+-x.x%)
- Signups: x,xxx (+-x.x%)
- Full Time Employees: xx (+-x), Hiring y positions
- Customers: x,xxx (+-x%)
- Gross MRR churn: x.xx% (+-x.x%)
- Net MRR churn: x.xx% (+-x.x%)
- CAC to LTV: x.x (+-xx%)
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. As mentioned previously, it is useful to show whether the KPI has increased, remained the same, or decreased since the previous week.
Here is a sample Economics Section:
"As a result of industry players hearing about the potential IBM deal, the number of New Licensing Leads that we are attracting per week has doubled since the start of the month.
New Licensing Leads per Week:
> 53 (202 Active Leads, > 12% Leads in Closing Phase) - Week 1
= 42 (163 Active Leads, = 08% Leads in Closing Phase) - Week 2
> 41 (135 Active Leads, > 09% Leads in Closing Phase) - Week 3
> 22 (123 Active Leads, = 06% Leads in Closing Phase) - Week 4"
In the example above, notice that you see an additive metric ("new licensing leads"), a cumulative metric ("active leads"), and a ratio metric ("leads in closing phase"). Having a variety of metrics is recommended.
Section 4: Needs
For a founder, the "needs" section is the 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, to review materials, or something similar. For this portion of the investor update, include any reference material and a link to setup 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.
Here is a sample Needs Section:
"We need an introduction to anyone that you know at IBM, preferably in the server business. You can either email me back with the Linkedin profile of your contact or please use the sample introductory email below:
I would like to introduce you to Jane, CEO of SaaSCo. They develop server software, and IBM is working to license their technology to improve server efficiency. Jane is looking to build more contacts within IBM, and, as I am an investor, I would like to introduce you both. I hope that this introduction proves useful."
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 to 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.
Wednesdays or Thursdays are the best days to schedule updates to maximize the likelihood of them being read. At the beginning of the week, angel investors typically have to catch up from the weekend and the professional investors will have partner meetings with follow-ups. We don't recommend sending updates on Fridays because it is right before a weekend, many people are rushing out the door, and others take half days.
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 cosistent. If your content is strong and clear the updates should be easy to write, and take no more than five minutes to complete.