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Advice Angel Investing Business Entrepreneurship Startups Venture Capital

The Importance of Updating Your Stakeholders and Investors Regularly

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There are many good reasons to update your investors regularly on what’s happening with your business. Some venture capitalists and angels like monthly updates, some prefer quarterly investor updates, others are fine with ad hoc information – one founder created a WhatsApp group of his investors and just messages us whenever he wants. It helps to build confidence when an entrepreneur takes ownership of updating their investors and do not wait for investors to ask for updates.

The investor has placed their trust in you and taken considerable risk to help you achieve your dreams. Regardless of your fiduciary responsibility, the entrepreneur has a moral obligation to let these people know what’s happening with their money.

In addition, when a startup is young and relationships with investors are new, it’s even more important to invest in building a relationship. However, an entrepreneur’s first responsibility (and passion) is to move the startup ahead. Regular investor updates help solve both problems to a large degree, without the founder(s) needing to take time away for one-on -one calls or meetings.

  • It helps continue to build trust.
  • It keeps the investors interested and excited about what’s happening with your startup.
  • If things aren’t going so well, it isn’t a surprise to your investors. Bad surprises aren’t a good thing for anyone and frequently end with frayed relationships.
  • If you need help with something, this is your chance to ask your investors for help. It is especially important when things aren’t going as planned.
  • If they know what’s happening, you continue to build trust with them, then, when you take another swing at raising more money, they’re more likely to help you or participate.

This is an example that a company selling a product online might send to an investor.

Dear Pankaj,
It’s time for another update on where our startup is going. Here are some high level things to start with:

  • Gross Burn Dec 2018: $100,000 / month
  • Revenue Dec 2018: $20,000 / month
  • Net Burn Dec 2018: $80,000 / month
  • Cash in the bank Dec 31st, 2018: $850,000
  • Runway (typically Net Burn but could be different based on growth, cost cutting, etc.):14 months
  • Total Pageviews this month Dec 2018: 4,250,000
  • Pageview growth from (last month/last quarter/last year): 60%
  • Total Unique Visitors Dec 2018: 2,125,000
  • Visitor Growth from (last month/last quarter/last year): 40%
  • Total Items Sold Dec 2018: 8911
  • Items Sold Growth Since (last month/last quarter/last year): 10%
  • Average Order Value Dec 2018: $2.25
  • Order Value Growth Since (last month/last quarter/last year): 15%
  • Gross margin Dec 2018: 35%, up from 24% in Dec 2017
  • New product summary, Challenges Being Faced, Goals and targets for 2019, etc.

Of course, please modify this for your business, include your KPIs and adjust for the frequency with which you update investors.

Getting a routine for investor updates going also helps your team focus on the targets you’ve laid out together as well as keeping you apprised of situations that may be brewing and having a good handle on your KPIs.

What tools do you use to track your KPIs, effectively create and share your updates with your investors and stakeholders? Please share them in the comments.

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Business India Startups Venture Capital

Skin in the Game

I was reading an interesting post on Gaurav’s blog about founders of startups taking significant paycuts when raising funding from VCs. i was going to post a comment but am having some trouble connecting to Gaurav’s blog.

VCs in India are applying what they’ve learned operating in the US and Europe to an economy and economic conditions which are very very different. This isn’t to say Gaurav is right and Sundar and Krish are wrong. However, there’s probably a medium that is a bit more amenable to both sides. VCs need the founders to be up to their eye balls in the business for many reasons. However, having a founder who is financially struggling, on top of all the other issues related to doing a startup increases the risks associated with the investment. It is conceivable for a founder with significant negative cash flow to throw in the towel and pack up her bags or worse, to stay on and throw themselves into a deeper and deeper grave, potentially filled with debt.

On the other hand, most entrepreneurs start a business because they are confident of their abilities and they are sure they can hit a home run ( or a century for all the cricketers out there ). Ideally, an entrepreneur will raise money from a VC when the business is moving in the right direction and there is revenue coming in. The founders might need the additional money to grow exponentially, diversify, or gain the valuable advice of an experienced team. Hence, it’s important that the founder takes a substantial pay cut in order to show the investor that they are “believers”. What “significant cut” means is relative. To a VC, a 75% cut is significant but to the entrepreneur, 25% is significant. At the end of the day, the entrepreneur must decide how much control she is willing to cede to investors and how costly the capital raised will be. A good negotiator might convince investors that it’s in ther interest to give the founders a 10% paycut from market rates.

Each founder has to evaluate their financial position and decide whether the delayed gratification is an economic reality and if they can afford to do it. If they can’t, perhaps it’s time for them to leave the bargaining table, or worse, leave the business.

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Business Business and Economics Misc.

Another Cog in the Wheel

Here’s a great post on Amit Ranjan’s personal blog about how large technology and outsourcing companies in India are turning the cream of the crop engineers into just more cogs in their wheels.
I worked at a very large Wall Street firm for a few years and then I’ve worked at small companies (small in terms of the number of people). The best part of working at a small company, by far, is seeing the results of your labor on a daily basis and how it directly affects the business. Good luck seeing how busting your hump on a daily basis benefits Infosys.

There are, however, significant drawbacks to working for a small company.

  1. The likelihood that your family and friends will know the name of the company that you are working for is close to zero.
  2. The pay is usually lower at small, unknown companies.
  3. The benefits are usually not as good as they are at large companies.
  4. The dangerous of a small company going out of business is generally higher than a large company going out of business.

The benefits of working for a small company are:

  1. You’re a name, not an employee number.
  2. The excitement of helping to build a business is enormous.
  3. Seeing how your work affects the growth of that business is an even bigger high.
  4. Working at a small firm helps you develop a sense of camaraderie that goes deeper than the relationships you can develop at a large firm.
  5. You could be learning and contributing much more in a small company than a larger one if you prove that you’re a doer not a talker.
  6. There’s more work and less politics at a smaller firm.

For more, in depth, details, jump over to Amit’s blog below.

Ques- What warning sign is written on the boundary walls of the TCS office in Madras?

Ans – ‚??Beware Trespassers- If you are not careful, you will be recruited‚??

amit ranjan

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