Conventional wisdom for founders of early-stage venture-backed companies is that it is best practice to send out monthly investor updates – and we agree. We see a significant correlation between success and the companies whose founders maintain the discipline to follow this best practice. Much has been written about what format to use and why this is important for investors (here are a couple of links for reference here and here), but very little is written about why it is important for founders and their teams in the first place.
This distinction is important because while it might be easy to fall out of the habit of doing something for someone else, it’s much easier to maintain a habit when it is for you and the objective of having your company and team to be as successful as possible. Centering the monthly update and tying it to your bottom line is a game-changer. To keep it simple, keep in mind the Triple-A rubric:
Alignment: the pace of a start-up can be frenetic, with constant on-the-fly decisions. Taking a moment each month to pause, and reflect on the company’s goals, accomplishments, strategy, tactics, and needs is important for you as the founder to make sure you are focusing on the most important issues and for your team to share and understand that same focus. As one of our founders, who has written a monthly update every month since early 2020 from pre-launch and $0 in ARR to over $8M in ARR, says “while the subject line says Investor Update, I am really writing for me. It allows me to pause the first Sunday over every month and reflect on the business – what we have done well, what needs improvement, where there are gaps in my team, and what I need to make sure I personally focus on in the coming month”. This founder uses the same content for their All hands to make sure the team is equally focused and aligned.
Accountability: as a leader, you know the importance of accountability in terms of driving results, focus, and creating a high-performing team and while this most often comes from within, using external accountability to build internal accountability can be a powerful force for action and results. As one of our founders said, “I don’t think founders should rely on others to hold themselves accountable. But it still feels bad to write the same thing twice in an e-mail. The practice of sitting down to send an update builds in internal accountability.”
We firmly believe that start-ups win because they execute more rapidly and effectively than larger organizations, and if knowing that you are reporting on results to a broader audience than just yourself on the margin increases the likelihood that a key product feature is shipped on time, or sales to close as forecasted, is only goodness. If your team also knows that you are reporting more broadly, it increases the likelihood that they too will share the same degree of urgency. Finally, the monthly part of the month update, versus quarterly, reinforces this focus on speed of execution.
Access: as a small team, the extended network of advisors and investors can be invaluable in generating sales leads, potential partnership opportunities, candidates to join your team, how to compensate them, and insights into the key issues you are wrestling with at any point in time. When you formed your cap table you likely thought deeply about why each investor was involved in the company, and the monthly update can be one important way to realize that potential. As another founder noted, “As a founder, I’m confident that I have the most context to make decisions. But realistically I will never see as many startups as an investor has, and investor pattern matching is an important input to take into account. If an investor has seen 90% of successful startups do X in a similar situation, the founder should have a solid reason to not do X.” Further, there is significant research on people and companies that seem to regularly “get lucky”, but in reality, that luck is a result of building relationships, showing gratitude, and being open to new ideas and connections, all of which is facilitated by the monthly update.
The most common failure pattern we have observed over the years is not not starting to send our monthly updates but rather stopping when things are uncertain or going less well than expected. This is understandable – no one likes to share bad news and to be transparent with issues and uncertainty, but this is exactly when your investors and advisors can be most supportive as they have likely encountered similar situations in the past or may be able to open doors, make connections, ask questions that can be helpful in navigating through the uncertainty or just provide emotional support. Two anecdotes in this regard, one positive, one negative:
- We were pre-seed investors in one company that found its initial product-market fit was just not there. They shut down this focus, iterated, explored, went through a “summer of despair”, and eventually landed on what seemed like a promising new focus. Never once did they fail to send out a monthly update. When the new direction started bearing early signs of fruit just as cash was running low, we were thrilled to invest more in the company to give the time and resources needed to get to milestones that allowed them to raise a large seed round from a new investor. Why? We obviously believed in the new direction, but equally importantly we had been part of the entire journey and saw just how effectively the team was able to execute during difficult times.
- We were small pre-seed investors in a company where the founder “went dark” and stopped sending updates until finally reaching out to let us know that the assets of the business had been sold to another company for essentially nothing even though based on the last update things seemed to be going well (financing fell through). As it turns out, the CEO of the acquirer was a close (non-obvious) friend of ours, and yet because we never knew of the challenges, we were not able to have any impact on the result. Could this relationship have been leveraged into “getting lucky” with the acquisition at a higher value, we will never know but think that perhaps yes. In other words, you never know what and who your extended family of supporters knows unless you ask.
A last and final incentive, if the above was not enough. Sending monthly updates is time-efficient. When you stop sending updates, it increases the likelihood of multiple inbound calls and, especially if you have a large-cap table, you will spend far more time doing one-off calls than the time it takes to share the same information with everyone consistently.
In terms of the format and approach to monthly updates, we will not rehash the existing materials out there, but encourage you to:
- Keep the format simple and consistent. It is much easier to send every month if you are not starting from scratch.
- Block out time and stack it with other administrative tasks so you both get it done and don’t interfere with important sales or product work.
- Share issues and things that have not gone well. This increases trust and increases the likelihood of generative conversations with your investors and advisors.
- Always make asks/have a “how you can help” section. If you are heads down executing, it is ok for this to be “no asks this month”.
- Thank people who have helped in the prior month. This increases the likelihood that others will help in the future.
- At the bottom, rehash the company’s mission and what you do as noted in the linked examples above.
So send your monthly investor updates. Not for us, but for you and your success.