So you’ve raised your first round of financing, hired some key team members and are off to the races. Your new investors are aligned on your vision and the goals that you will need to achieve in the next 12–18 months. They have studied the risks, vetted your assumptions, and understand the critical hypotheses underpinning your strategy.
And then you woke up 🤗. Here in the real world you are late for standup, your laptop is somewhere in your bed and you have a string of text messages from an angel investor who wrote you a $10k check that reads “hey. how’s everything going? any update?” You can’t remember which version of the deck you sent them. You’ll deal with it later.
Investor updates have been the topic of countless tweets, articles and blog posts. Even products have been built to solve the problem. Nobody would disagree that founders should send them…and yet many do not.
There are many reasons why an investor update can end up at the bottom of your to-do list as a founder. Maybe you are anxious to share bad news, or you are too busy crushing it, or you feel like sending an update is a chore for the benefit of investors. After all, you didn’t start a company to send status updates to a guy who sits on Twitter all day, and you’ve got real work to do. Right?
Wrong. What they don’t tell you about investor updates is that they are not for the benefit of the investor. They are for you. Done consistently, investor updates are a powerful ritual to cultivate clarity and effectiveness as a leader, build an operating cadence with your team, and put your capital base to work.
I wish someone had told me this in a way that would make me listen when I was a 24-year-old first-time founder. I’m sure they tried, and so I’m writing this so others can learn from my mistakes over the five year journey of building Managed by Q.
I do not plan to cover how to write an investor update, for that I suggest this template courtesy Alice Default, CEO of Double. My two cents is that the format and content matters much less than the ritual.
Start making sense
In the words of Moltke (the Elder), “no plan survives first contact with the enemy.” Odds are that your plans changed after you started fundraising. Odds are that they changed again between signing a term sheet and receiving a wire. As such, more often than not by the time first money is in the bank and you can finally focus on running the business, everyone is at least mildly confused as to what the plan is.
My long-time coach and dear friend Jeff Hunter once described the role of an early stage founder and CEO to me as Chief Sense Maker. Building a startup is inherently fraught with ambiguity and novel challenges, compounded by an aggressive rate of change and learning. Not surprisingly, people get confused. Your success as a leader is defined by your ability to move people from confusion to clarity.
Keeping a monthly ritual of writing an investor update is a forcing function to step back from the day to day, evaluate new information, get yourself clear on what is happening and what it means. Sending a monthly update is an opportunity to share your clarity with others. As Richard Feynman said, “if you can’t explain it to a six year old, you don’t understand it yourself.” Maintaining a clear and consistent dialogue with your investors will ensure that nobody is surprised by minor setbacks or major changes in strategy.
A commitment to sending a monthly investor update is a commitment to honing two of the most important skills of a leader, synthesis and communication. Jeff Bezos and Warren Buffet did not wait until they were successful to start sending investor updates, and their letters to shareholders did not start out the stuff of legend. They practiced! A lot! If you have visions of writing an S-1 or epic shareholder letters some day, when were you planning to start? I would suggest today.
Building the machine
The way that you manage your business in the early days will reverberate throughout your company’s culture forever. If you create an environment where it is safe to fail, people will take constructive risks. If you provide clear and consistent feedback to your early team, they will likely do the same as they build teams of their own.
It will come as no surprise then that the investor update is an important tool not just in shaping you as a leader, but in shaping your early team into a cohesive machine that can identify, diagnose, and solve problems faster than your competitors. A disciplined approach to investor updates will naturally lead to more rigor in interrogating hypotheses in pursuit of the holy grail, strong product market fit and a predictable repeatable business.
You will likely rely on the early team to pull together the data required to compile your monthly investor update, and bringing them into the process will instill a sense of collective ownership. Having been an early employee myself (Artsicle, represent), I know first hand how motivating it is for the team to have direct exposure to the investment community. Sharing the full investor update with your team goes a long way in building a culture of transparency and reflection, and will pay dividends when the company inevitably confronts adversity.
As you build a process and reporting cadence around the investor update, you are laying the foundation for the operating rhythm that will serve you well as the business grows more complex and requires more structured management. What begins as a monthly investor update will evolve naturally into goal setting, budgeting, departmental planning, board prep, and all kinds of other fun stuff I hope to never do again.
It takes a village
It is an incredible time to build a business. More than ever new companies are able to raise financing not just from funds, but from individual operators and fellow founders who are eager to give back, either to make a name for themselves, generate returns, or just get out of the house.
If you have been fortunate to get an all star cast of investors around the table, you need to put them to work. It isn’t rocket science, but it does help to understand the psyche of an investor to get the most out of your relationship.
For the purposes of our discussion we take the view of the average investor: not great, not terrible, probably on your cap table. They won’t ignore your emails, but they probably aren’t staying up late thinking about how they can help your business. After all, it is your business and they probably have a dozen other companies to think about. Yes, these are the people who ask “how can I be helpful?”
In my experience investors actually do want to be helpful, but they need a little push. They have never done your job before, and they don’t understand your business as well as you do. Sending regular investor updates provides a monthly onramp for investors to engage with the company on their own terms. You will be surprised how far a great investor update can go to draw out investors who would have been otherwise on the sidelines.
Even if you don’t need anything from your investors, the investor update is an important tactic to staying top of mind. Do you know how many times a day your investors are asked by journalists, politicians, enterprise customers, other investors, and lots of interesting people “what companies are you most excited about?” Literally all day.
If their answer isn’t your company, you are not getting the most out of your cap table. If you aren’t sending regular investor updates, you can bet your name is not coming up.
Before you hit send on your next investor update (maybe today!) try to visualize what snippet of information people will be repeating to their friends and colleagues at (Zoom) happy hours, (Zoom) dinners, on the golf course, or in the clubhouse. It can be pretty much anything: a video of a new feature, screenshots of customer feedback, crazy sales numbers, bio of a new hire, your insights on the market — just something that stands out and is worth telling others.
Mobilizing your cap table can turn your company into a vortex for capital, talent, and customers to help you win as your market eventually becomes competitive, and it starts now.
The gift that keeps on giving
The ROI on investor updates is stupidly good. Good for you, good for your company, and good for your investors. The benefits compound with consistency, so treat investor updates like your Mother’s birthday — put a hold on your calendar, set an alarm in your phone and do not miss it for the world.
Yes, it is a time commitment. However, it is an investment in yourself and your team, and not a status update. If you create updates you are proud of, they become a vivid history of your business and a powerful asset. Sending previous investor updates is a pro move to show prospective investors and candidates how you really run things.
Will sending investor updates prevent your company from failing? Probably not, but they will make you better and your team better and keep your investors happy, so just do it.
