We sometimes hear founders say that investor updates are a drag. They de-prioritize them and a few even consider them a waste of time. Some think that a monthly update’s only use is for investors to track the progress of the startup and make sure things are on track.
Having previously been an entrepreneur I understand the first reaction but I strongly believe keeping your investors close and well informed, is always useful and in cases can prove vital.
To begin with, (good) investors are advocates and big supporters of the founders and the startup. They have the startup on top of their mind, thinking of how they can add value. They do so in a number of ways: by doing business development, helping with PR coverage, recruiting people, communicating to new investors etc.
How can investors help and promote if they are not fully informed? They need to be in the loop regarding the overall progress, the new product offerings, the evolving value proposition and market penetration of the startup.
If they are not up to date, investors don’t have the confidence or rather the conviction to “market” the startup. A monthly update is also a great way for founders to voice a specific ask to their investors. Most startups apart from VC’s (with whom they typically communicate more regularly), have also angels or early backers on the cap table. Those guys can also be helpful if they are kept engaged. The time you need as a founder for a monthly update is a small price to pay but can help you stay in the attention zone of your backers and get that intro to a great engineer or business partner.
But an open communication and a regular monthly update can prove very important in difficult times. It is often the case that startups have not achieved the promised results with their last round of funding. They reach a point when they need new financing but their business case is not compelling enough for new investors. This is when having engaged and informed investors pays out. You cannot call on existing investors for support just when you need them. You need to have an open and transparent communication since the start of the relationship so that investors have an understanding of the business and its long-term potential and thus believe that a temporary setback can be overcome.
Therefore, it is good practice to always share the good as well as the bad news and set the right expectations by not overpromising. Building trust occurs when founders are open and deliver on most of their predictions re product launches, expected numbers etc. That trust and investor conviction in the business can prove of paramount importance in difficult times.
Finally, there is value for founders in taking the time to compose a monthly update. Founders are typically buried in the operations and the details of building a business and sometimes do not take the time to view things from a higher level. It is important to take a step back from time to time, assess progress according to plan, assimilate learnings, and adjust the course.
A monthly update is a disciplined way for founders and key people of the team to get together and discuss among themselves what has been achieved and what must be dome. It is a great opportunity to re-prioritize and adjust the course of the startup.
At the end of the day, your investors are your aligned partners rooting for your success. Why would you not provide them with all the means to support you in the good times and potentially save you in the difficult times. Transparency and regular communication build trust and are essential, and so is taking the time to reflect every now and then.