Getting the most out of your Investor Update email – tips from your target audience

By Christian Noske & Alex Lee

This piece is a team effort between Christian Noske and myself. Christian is the Head of Alliance Ventures. We started talking about how important it is to have transparency between an investor and its portfolio companies. The outcome was this piece on Investor Updates.

Disclaimer - The views and opinions expressed in this article are our own and do not necessarily reflect the views of our employer.

We’ve been on the receiving end of a lot of investor updates. Some companies do it well, some not so well, and surprisingly, some not at all. Between building product, selling product, and managing the team, we understand the investor update may not be too high on the priority list. But consider the value that could come out of it. VCs spend their days consuming information, studying trends, and building an extensive business network to support their portfolio companies. The investor update email is a powerful tool to leverage this effectively across a big group of investors.

Why? The investors update is an effective way to keep your investors engaged in your business progress and needs. If you write a regular update to your company already, you can reuse most of that for the investor update. In this post, we will cover the communication architecture, why to send investor updates, and the relevant topics to cover.

Communication architecture

Before we get to the investor updates, it’s important to lay out an overall communication architecture (if you do that well, you can leverage it for this audience too). Designing and implementing the communication architecture for your company is perhaps the CEO’s most important operational responsibility (to paraphrase Ben Horowitz). The communication architecture takes many forms. At the company level, there’s the organizational structure and decision-making process. At the operational level, there are strategy meetings, 1-on-1 meetings, all hands meetings, performance reviews, and weekly CEO emails. These form the communication architecture for your internal stakeholders.

Similarly, you need a communication architecture for external stakeholders. In this post, we specifically address the investors. Let’s start by covering the legally required communication architecture.

• Board members in VC-backed startups are active minority investors and they are expected to join quarterly board meetings and vote on decisions such as budget approvals and equity grants.
• Board observers are similar to board members except they do not vote on relevant company decisions. It’s not uncommon for board members to bring a junior investment team member to the meeting as a board observer.
• Major investors are defined differently for each company. The charter typically spells out the ownership required to be considered a major investor. Having this status gives the investor information rights: typically, quarterly updates on financials and KPIs.
• Other investors are simply on your cap table and you have no legal obligation to provide any on-going investor related information to them.

From a legal perspective, in most cases the CEO is only obligated to report company updates to board members, board observers, and major investors on a quarterly basis.

Next, let’s consider who your investors are:

• Seed stage: Seed funds, angels, non-professional investors
• Early stage: Institutional venture capital funds (Series A/B/C)
• Growth stage: Institutional growth equity funds (Series D/E/F)

As you progress from seed to early stage to growth stage, inevitably you outgrow some of your earlier investors (that might sound bad but it’s the reality; and it’s also true that certain investors like to specialize in certain stages). When you reach growth stage, your newest investors should bring a rolodex and expertise that is uniquely suited to your needs, something that your early stage investors may not be able to provide. Of course there are always exceptions. There are many cases where your angel investor could be one of your most value-added investors all the way until the company goes public.

The content of your updates will naturally evolve from Seed stage to Growth stage, as the focus of a startup changes from building a MVP to finding product-market fit and growing the customer base. The CEO should take time evaluating what needs to be adjusted based on a changing audience and company needs.

Regardless of the makeup of your cap table, your investors are all ambassadors for your business. You can recognize and unlock value from your ambassadors with a simple yet substantive update. You do not want to lose touch with your earliest investors as they were the ones that believed in you first and it’s never too late to start sending investor updates

Why send investor updates?

We have seen with nearly every portfolio company over the years how investor updates can unlock great value. It can trigger situations where an existing investor talks to a potential new investor. The investor updates are the basis for an informed discussion.

In summary, these are some of the reasons why you should send investor updates:

• Investor relations: Investing requires a foundation of trust and transparency. Trust is best built over several months and years of touchpoints. Each investor update is an additional touchpoint. By providing transparency to the highlights and lowlights of your business, your investors might have a way to help in unforeseen ways.
• Network & advice: VCs spend their days building informational awareness and an extensive business network to support their portfolio companies. If you’re looking to hire a Head of Engineering, they may know a very good candidate for you to meet. Or if you’re dealing with a difficult business problem, your investor might have a solution because they’ve seen it happen with another portfolio company.
• Follow-on funding: In venture financing decisions, quality of the management is a key driver. An investor can gauge a CEO’s ability to identify and communicate effectively the status of the operations by their investor updates. Regular investor updates can go a long way when it comes time to raise the next fundraising round. Also, new investors will speak to existing investors and you want your existing investors to speak highly and and be well-informed about you.

 How often should I send an investor update?

Weekly, bi-weekly, monthly, or quarterly; it depends on the nature of your business, your management style, and the expectations of your investors.

For early-stage startups, a lot can fluctuate within a month and trends shorter term than that aren’t necessarily useful. So, a monthly update might make most sense. Consider your update your time to reflect on the state of the business at a 10k-foot altitude, and decide where you want to get granular, or ask for help.

Another option is a weekly investor update. This might sound like too much work but it doesn’t have to be. Sunday night or Monday morning is a good time for you to reflect on the week that passed and strategize for the week ahead. What did the team accomplish? Is the company on track? What will you focus on this coming week? If you send these thoughts to your investors on a weekly basis, it builds strong momentum, holds you accountable and helps you to structure your thoughts around priorities. Sometimes you might not have a lot to say, and that’s ok. The investor updates also don’t have to win the award for most polished email. It’s important to keep the cadence and don’t skip weeks. Even a short: “It’s a slow week due to 4th of July and the team is getting some well-deserved rest” is enough sometimes and definitely not a waste of your investors’ time.

 What to cover in the investor update?

The format to deliver this update can vary. Most CEOs opt for an email format. The best investor updates maintain the same format every month. This reduces the burden on you and establishes a regular cadence for your investors. We recommend 3 bullet points for each category below. Keep it concise and data driven if possible.

• Finance: Most recent month cash burn, cash remaining in the bank, and cash runway. Include updates on financing plans if any.
• Metrics: Status on relevant KPI (for consumer startups it may be users, for enterprise SaaS startups it may be ARR). Include MoM and YoY growth rates.
• Product: Highlight product or service launches. If there were delays, explain what caused the delay and how you will mitigate the situation. Include a snapshot of features in the pipeline.
• Organization: Highlight key hires with their background, expertise, and what you expect they will achieve. Also note if key personnel are leaving. 
• Forward looking goals: For the next month, what are you focused on? What will you aim to deliver before the next investor update? This is one way to hold yourself accountable.
• Call for help: Your investors want to help you. If you’re looking for a professional service firm or hiring for specific roles, take this opportunity to tell your investors. They may know people in their network that would be a good fit for you and your company. 

With this format, you’ve provided an update on relevant business matters, set expectations for the coming time period, and made a call to action for your investors. How much information you choose to share is up to you. We understand there are cases where you want to keep information more restricted to minimize risk of a leak. One tactic is to state growth rates rather than the specific metric (for example, we grew 3x YoY rather than stating the number of daily active users). You can also secure your communications in other ways.

Below is a sample investor update to get you started.

If you have any thoughts or questions on effective investor updates, please comment. And if you are working on anything in the industrial or mobility space, send me a note at alex.lee@alliance-rnm.com — I’d love to connect.

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To:                  Investors

From:             CEO

Date:              April 2020

Subject:          Unicorn Series A Company Investor Update, April 2020

Hello Unicorn Company Investors,

Hope this finds everyone well and safe. Given the situation with COVID-19, we’ve seen material change to our business. Below is a summary of developments since last month.

Finance

• April cash burn: $400K (reduced burn rate by 20% from previous month)
• Cash remaining: $4.5M
• Runway until: March 2021
• Equity financing: Initiated first meetings with Series B investors. Giving ourselves extra time to fund raise given investing climate with COVID-19.

Metrics

• April 2020 MRR is $160,000 || MoM -20% || YoY +160%
• MRR was hit by 20% as 5% of our customers churned and others reduced their usage. We expect May 2020 will be even worse.
• We converted 1 customer from POC to a commercial contract. Our total customer count is now 7 customers, all Fortune 500.

Product

• Added compatibility with Microsoft Azure and Google Cloud (previously only compatible with AWS).
• Based on feedback from Fortune 500 customer, added predictive maintenance feature.
• Engineering team is working on providing edge compute capability for defense contracts.

Organization

• We’ve implemented a hiring freeze until there is more clarity on market conditions.
• No layoffs. Reduced executive management salary by 10%. Prepared to reduce salary across the whole company if necessary.

Forward Looking Goals

• Ensuring our enterprise customers stick with us and improve churn rate to 2.5%. We’ll consider discounts and deferred payments on a case by case basis.
• COVID-19, identify opportunities to reduce expense by an additional 10% to extend runway by 2 months (reduce compute spend, push back rent payment).
• Continue outreach to Series B investors and exploring other financing options (drawing on approved venture debt, SBA PPP loan).

Call for Help

• If there are Series B investors in your network that are actively investing, an introduction would be helpful.
• Benchmarks from your portfolio companies: Ideas to cutting operational expenses or creative ideas to increasing employee engagement (due to WFH).

Thanks,

CEO