Angular Ventures Weekly Issue #183: For the week ended May 2, 2023
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Minimum Viable Reporting
In today’s climate, reporting to investors and other stakeholders is more important for CEOs than ever. It’s critical to avoid surprises, CEOs should make sure people are on board for upcoming financial rounds, and — generally — that there is support for their approach. While it may not always be fun to hear warnings, CEOs are relying on their stakeholders to sound the alarm as early as possible when they feel a course correction is needed. Additionally, preparing stakeholder reporting should benefit CEOs by forcing them to step outside the day-to-day and reflect on the business. Finally, this can be a big time-saver. The clearer your reporting and the more current it is, the less time you need to waste bringing people up to speed in board meetings or 1:1 meetings.
Two key tools. Over time, I’ve come to a set of conclusions on what is generally the most effective set of tactics for reporting for any company with revenue (if you are pre-revenue, reporting can be lighter and slightly less frequent). In my mind, a company’s reporting package should consist of board decks and weekly reports.
Board decks. The goal here is to provide more detail on critical issues so that the board conversations can be effective. These should be distributed one week before your board meeting, ideally as Google Slides so that people can both download them and comment or ask questions online. The main point of these decks should be to facilitate great board conversations about issues that matter to management, so they should contain whatever metrics, information, analysis, customer data/quotes, or whatever else would be helpful to achieve that goal. The board meeting is designed to serve the CEO. The board deck serves that meeting — so make sure it does. Don’t turn it into a blind metrics dump that will take hours to go through.
Weekly reports. Yes, weekly. I used to avoid asking CEOs to prepare weekly reports — and I still believe that it’s up to the CEO’s discretion how frequently they want to report. But my experience has been remarkably consistent: CEOs that report weekly perform better. Period. We can debate the mechanism behind this linkage, but the correlation is too strong for me to ignore. My view is that any CEO with revenues should be reporting to key stakeholders on a weekly basis. What does that look like?
- Light. This weekly report must be lightweight. Make it too heavy and (1) people won’t read it, (2) the CEO will stop writing it, and (3) the key points will be too hard to identify. Putting the weekly email together shouldn’t take more than 30 minutes tops, probably less. Over a month, that is less than two hours. Much easier than updating multiple stakeholders in hour-long calls.
- Shared in google drive. It’s fine to email the weekly update out, but the best format seems to be a shared google doc, so that everyone can comment and ask questions. This way, your communication with stakeholders is one conversation, you don’t need to answer any questions twice, and everyone gets the benefit of all the clarifications and commentary that everyone needs. It keeps it as one stakeholder conversation between board meetings. Some companies even invite key direct reports to read and access the same google doc so that they can answer questions. At the early stages, that seems to have more benefits than downsides.
- Oriented around quarterly numbers. Early-stage startups are unpredictable things, so weekly or monthly numbers rarely tell the story. Monthly numbers move around too much to matter — and the sale you close this week doesn’t mean much in isolation. These things only matter in relation to quarterly targets. What seems to be most useful in understanding a business is, therefore, weekly shifts on quarterly numbers. You have a quarter target for a KPI (usually revenue or ARR, sometimes something else) and the numbers that capture your progress towards those targets move around slightly on a weekly basis. Did a deal close? Did a deal slip to next quarter? Did a deal get smaller than you were expecting? Those changes capture a lot of information. Share that with your stakeholders, and they will understand what is happening. So will you.
- KPIs. Most of the companies we work with are oriented around ARR as the KPI. For an ARR business, I have found the following quarterly KPIs to be most useful — especially when reported on a weekly basis. At a minimum, report on the current quarter. But as visibility improves, you may want to include next quarter as well. The report should include the number and how that number changed from the previous week. Here are the four KPIs I care most about:
- New ARR Target. This number should not change during the quarter. This is the target for the increase in ARR during the quarter. It’s important because you want to see how real ARR is tracking above or below target.
- New ARR Closed (through the door). New ARR actually signed so far in the quarter. This number only changes when new ARR is signed. Often broken down into new logos and upsell. Churn can also be reported.
- New ARR Forecast. What you actually believe you will close during the quarter. This number should move around quite a bit and should always represent your true best guess. You should try to never miss this number.
- Upside New ARR. This represents all the new ARR that could potentially close during the quarter if all goes perfectly. This number can often be much larger than the forecast. A deal that could happen but not in the current quarter should not be included.
- As things change, these numbers will move around — and your weekly report should include key changes to these numbers and the reasons behind them. For example: “New ARR Forecast: $100K. Up $10K in the week because ACME Inc. which we thought would be $25K next quarter will buy $10K this quarter. We still expect $15K upsell next quarter.” Another example: “Upside New ARR: $550K. Down $100K because Beta Inc. and Charlie Inc. are pushed to next quarter.”
- Cash burn and runway. With each week’s report, include the key cash flow and runway data. Monthly gross cash burn, monthly net cash burn, cash balance at the end of the last month, months of runway assuming no further sales, and months of runway in your actual on-target plan.
- Other updates and asks. It’s helpful to put in updates from marketing, product, engineering, and HR when significant — but don’t spend too much time doing this. Just what is critical. Also make sure to put in your asks — as well as a link to your updated intro text (so people can easily make customer intros) or other sales collateral.
That’s it. The sort of weekly update described above is a sign of a well-run company — one that is turning into a machine. More importantly, it provides confidence that everyone (the CEO and all the stakeholders) know exactly what is happening, if we are above or below plan, and what is happening in the field. These are challenging times — and the 15–30 minutes a week it will take you to put this together will pay for themselves.
If you have a different format for weekly reporting that you think is useful, I’d love to see it.
Good luck out there.
May 31 / US Immigration Best Practices
Jennifer Schear, Founding Partner, Schear Immigration Law Firm
FROM THE BLOG
Looking Back to Move Forward
How to survive this extraordinarily exciting and wildly disconcerting age of generative AI.
LLMs and the Future of Customer-built Software Design
How will LLMs change software development and design?
Navigating AI’s iPhone Moment
A venture perspective on LLMs and what’s next…
Principles for AI Product Design
Or how we could all learn a little from Google’s conversion optimizer.
Regulating AI. Chamath Palihapitiya shares his case for regulating AI in this key The Information article. “Transparent, accountable and expert oversight — even when implemented late or ineffectively at first — has proven to be an important part of scaling an economy. For better or worse, regulation is a necessary and proven boundary condition of capitalism.”
From AI groundbreaker to doomsayer. Geoffrey Hinton, ‘The Godfather of AI’, has left Google as he is concerned that AI could cause the world “serious harm”. “Gnawing at many industry insiders is a fear that they are releasing something dangerous into the wild. Generative A.I. can already be a tool for misinformation. Soon, it could be a risk to jobs. Somewhere down the line, tech’s biggest worriers say, it could be a risk to humanity. “It is hard to see how you can prevent the bad actors from using it for bad things,” Dr. Hinton said.”
Another bank collapse. First Republic Bank, the nation’s 14th-largest bank as of last year, has collapsed, been taken over by the FDIC and, yesterday, it was announced that JPMorgan Chase will be buying most of its assets. This is the second-largest bank failure in US history. Like Silicon Valley Bank, First Republic was a major player in the startup ecosystem — and many startups previously held their deposits there. First Republic has struggled since the March collapses of Silicon Valley Bank and Signature Bank. The bank’s “final woes kicked off early last week when the bank reported financial results that disclosed it had lost more than half of its deposits during the first quarter”.
The great flattening. As David wrote several months ago, many tech companies have fallen into the hierarchy trap. “On Blind one staff member at Meta wrote that the tech sector had become too bureaucratic, a far cry from the company’s early “move fast and break things” mantra: “We made this bed for ourselves. Became the thing we mocked old corporate companies for.”” Many tech companies — most notably Twitter and Meta — are now cutting out their middle management layer in mass layoffs and have already laid off more than 170,000 this year — with the aim of speeding up decisions and innovation, increasing profitability, and reducing bureaucracy.
HOW TO STARTUP
NOMO FOMO. Five VCs shared what they are looking for in pitches from first time founders in this great TechCrunch piece. Some of the best advice in the article was shared by Mayfield Partner, Patrick Salyer, in regards to what fundraising tactics founders should retire. “There were many tactics during the 2020 and 2021 bull market that aren’t appropriate for the current environment. These include setting arbitrary deadlines in an effort to create FOMO. Another one is setting a specific raise amount and/or dilution targets without context for what investors are looking for. In today’s market that can show a lack of situational awareness, which could turn off a new investor.”
First time founder misconceptions. Lattice’s CEO, Jack Altman, wrote up an invaluable tweet thread on ‘things you think as a first time founder that just ain’t so’. The whole thread is worth reading, but this misconception in particular is important: “Fancy Firm X emailed me and wants to talk! They must be interested, and even if not it’ll be good learning for me. I’ve come to the view that you’re either fundraising, or you’re not fundraising. The entire job of the person who emailed you is to talk to people like you. When you’re not fundraising, *your* job is to avoid all distractions except your only 3 jobs; talk to customers, build product, construct your team. Do your job, don’t do theirs. Investor conversations when you’re not ready are much worse than a waste of time; they’re a huge distraction.”
HOW TO VENTURE
Shrinking funding amounts. Crunchbase data shows that, for the first time in a decade, the average and median deal sizes of funding rounds have fallen for US startups.
Steadybit will be hosting a webinar on how to “Tailor Chaos Engineering to Scale Your Reliability Journey” on May 11th. Register here to join.
Sisense announced the promotion of Ariel Katz to CEO.