Investor Relations For Startup Founders
Since 2017, the median seed funding for a new startup has risen by over 30% to $2.2 million. Whether you are flush with VC cash, or raised from family and friends, at some point you are going to need to tell your investors about your progress. If you have not been communicating to the individuals on your capitalization table (cap table) at least quarterly, they are likely already sending you emails requesting updates.
Investor relations (IR) is critical to the long term success of a startup. Not only does IR signal to your current investors that you are a good steward of their money, it also buys goodwill that can potentially be useful for later funding rounds. Even if you never go on to raise additional funds, setting a healthy IR cadence up early on will force your startup team to evaluate metrics and pinpoint areas of concern before they become bigger issues. Most startups send a monthly or quarterly email, but let’s examine how some startups are handling investor relations today.
How do startups deal with investor updates?
At NYC-based recruiting tech startup, Recruitifi, the IR process is a team sport. Recruitifi’s CEO, Justin Luciani, works closely with his COO to draft the quarterly IR letter, which dtypically involves highlights such as new product features or changes to prospective pipeline deals. Once they complete a first draft, they lean on department heads across the company to fill in the blanks with itemized metrics. Before the C-suite sends the letter, they ask department heads for feedback.
While quarterly updates work for some teams, others find their investors are more content with a monthly update. CEO & Founder, Ben Mackinnon, spent early years at Kard writing quarterly updates only to be hit with dozens of ad hoc requests from investors and advisors. In the past year, he moved this process to a monthly cadence, containing only four core company KPIs. Ben saves even more time by creating a standard Mailchimp template, and then pulls data automatically from reporting dashboards every month.
One of the most important factors for successful IR is consistency and cadence. Ian Roncoroni, CEO of Next Caller, notes, “[Ii]t can be tempting to wait until you hit certain milestones before sending out an update, because you always want to have good news to share. But, as milestones and projects often get delayed, this can be a slippery slope that causes massive delays in getting out updates, which can frustrate investors.”
What information should be included in your investor updates?
Most investors want to see the numbers. While color commentary on what has gone on in the recent period is important, it’s best to focus the IR update on 4 to 5 primary KPIs that move the needle forward for your company. Kard focuses heavily on GMV, gross revenue, burn rate, and user counts. While GMV is valuable for a marketplace-oriented startup such as Kard, other companies may be tracking things like employee attrition and sales pipeline movement.
Building in public and the rise of hyper-transparent startups has changed the dynamics of who sees company updates. Historically, IR updates were exclusively for the eyes of investors and advisors on the cap table, but today many companies have peeled back the curtain to company employees and outsiders. While many founders do not include employees in their updates, at Next Caller, Ian believes that “treating employees like adults and being candid...builds a tremendous amount of trust and confidence,” enough to outweigh any risks.
“Don't be shy to share bad news, as your investors want you to succeed and can hopefully help you in tough situations,” Mackinnon says. Investor updates shouldn’t obscure what is going on at the company. Use these letters as an opportunity to seek advice from your supporters.
What are some tools and tips for building a robust IR process?
Email automation platforms like Mailchimp are a must to help manage your investor contact lists and maintain email templates. When it comes to presenting your data, you can choose to put numbers right into the body of the email or , attach a PDF. Crafting emails by hand can get messy, but may make sense if you intend to send bespoke messages to different segments of the cap table.
Keeping information confidential to the trusted circle of investors and employees can be nerve wracking. It is recommended to watermark your documents that are sent outbound using a tool like DocSend. With DocSend, you can track who has opened or forwarded the document. While this helps, it is not a silver bullet. “Assume everything you send to your investors will get forwarded on to people [who] you don't want to see it,” advises Roncoroni.
Kard relies on a series of dashboards and automated reports generated directly from their backend databases. Setting this up from the beginning will pay massive dividends—both for Investor relations and internal monitoring. You should not need any expensive BI tools to accomplish this - see if your current database vendor offers reporting tools out of the box like MongoDB Charts. For those using relational databases, we recommend starting with simple tools like Redash.
SaaS companies that rely on automated billing platforms like Stripe or Chargebee can also benefit from tools such as Profitwell. Profitwell offers up easy reporting on top of these payment platforms to easily dump aggregated datasets that include churn metrics, ARPU, gross profits and much more.
Good Investor Relations can be the key to future growth
Keep your cap table “clean”. The fewer, more professional investors on your cap table generally leads to a simpler investor relations process. You don’t want to chase down hundreds of investors for signatures when it comes time to sell your business. Similarly, you don’t want to be answering detailed questions late into the night from the dozens of investors that wrote you $5,000 checks. Avoid party rounds, and aim for bigger checks early to reduce the number of hands in the pot.
Lastly, be proactive. Do not wait for requests for information from your board or cap table members. “Regular communications will keep you front of mind with your investors. When they hear of talented people looking for new jobs, or new investors looking to deploy capital, or anything that could be helpful, they'll think of you and reach out, ” Roncoroni says.
Consistent updates lead to trust, and trust is what builds the foundation of strong relationships.
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