Investors often talk about how much they want to help their companies. In our case, that is 100% true.
We feel that being responsively helpful to our portfolio companies is fundamental. The key word there, though, is responsively.
To a huge degree, our ability to help is a function of how well our companies communicate with us and ask for help. And we find few tools as helpful to that end as the regular information updates we receive from our CEOs.
We have 185 active companies in our portfolio; as you might imagine they generate a significant amount of information that gets distributed to us on a periodic basis, in a wide variety of formats. I can't speak for other funds, but we distribute every update we receive to the entire firm, upload it to our company tracking database and often respond to the CEO with comments and questions. Understanding what is happening in our portfolio companies is a deeply held tenet for our whole firm.
Simply put, if we don't know what is going on, we can't understand how to help. And helping is what makes our involvement as investors more valuable than just our money.
Here are a few thoughts on how entrepreneurs can make those updates as productive as possible for both sides. Many kinds of information can help us get a sense of a business, but there is one bit of information that rules them all -- it trumps all others and should be at the top of every update you send:
How much cash is left in the bank and when will you run out of money at your current net burn rate.
Not when you run out if sales increase, not when you might run out if things go your way, but the bald truth of when you will run out of cash if nothing changes. (If you don't include it in the update we're going to ask - as will any VC worth his/her salt - so you might as well tell us!) Beyond that essential fact, updates can take many different forms and include all kinds of different data.
Here are questions you should ask yourself as you think about the best way to do this for your company:
1. Is the data I'm sending to investors the information I need to run my business well?
If not, it's the wrong data. The work of gathering the data and formatting investor information should produce a distillate of the data you regularly analyze to make your key operational decisions. Creating busywork just to make the investor updates seem hefty ifs a waste of time; your time being more important than the VC's.
2. How often should I send information updates to investors?
There's no right answer here, other than to set a schedule and stick to it. Maybe monthly is too often for your particular situation, maybe it's just right. In most cases, though, going beyond quarterly is not frequent enough to get the help you need, nor is it enough to build trust with your investors. Also know that when something major happens, good or bad, you shouldn't wait to tell us - we always want to know as soon as possible.
3. What should an investor update look like?
Again, this is all about personal preference and ease of production. We have excellent reports that are a single page. Others go into deep detail. Some CEOs use investor reports as a way to review business fundamentals and practice thinking through essential issues. Others are entirely just the facts, ma'am. Determine your format and stick to it. A regular format will make it far easier for you to produce. It also sets the VC's expectations about what to expect. My preference is simple text via email - easy to read, no downloading necessary and easy for us to share internally and copy to our database. Save the fancy graphics for marketing to customers. We don't need it.
4. Should I share the investor update internally?
I'm a big fan of complete transparency when it comes to company information - we shared everything at Etsy and it made for a great, trusting environment. While each company's culture is different, trust does tend to grow from open team communication.
5. Will investors remember what I sent last month?
Hell yes; if last time you promised an update on something in particular, be sure to include it. We do read every report and discuss them across the team, too.
6. Should I hesitate to send bad news?
You better not hesitate. We can only help if we know what's going on. Hiding an issue doesn't make it go away. Let us know pronto. How else can we help? As the Godfather said, good news soon, bad news… sooner.
7. Is there anything I shouldn't include?
Hmm, I'd prefer not to hear about employee birthdays and company outings. Don't go on at length about your great press, unless it is truly spectacular and will impact the bottom line. And, most of all, please don't butter us up. Don't sell us. We aren't a customer or a market partner. We were sold when we made the investment. Now we need to be well and efficiently informed. Superfluous information is just that: Superfluous.
As far as I'm concerned, as long as you send us your cash position and cash out date, you've covered almost all the necessaries ;-). Ok, maybe not entirely - product updates, new hires, requests for help, new investors, big deals; we want to know all of this. We're here to help - make that easier for both of us!