If you want to successfully raise future funding and keep good relations with your backers, be sure to do regular investor reporting.
No surprise that getting capital from existing investors is much easier than doing the whole investor targeting and outreach process from scratch. But if existing VCs haven’t heard from you since writing a check, this path will also be rocky.
How to make things easier? Keep your VCs, angel investors, accelerators, and incubators updated on your company’s performance via regular investment reports.
Constant investor reporting may sound pretty tedious, as there’s no universal standard, and most founders don’t understand how to do it right or simply find it unnecessary until the actual fundraising begins. But the comforting truth is that the majority of those who get investments are expected to report to their backers on how the money is being used.
General partners always do private equity reporting to their LPs (limited partners), venture capital firms go with their reports to fund investors, and even accelerators and incubators update their backers. So, you’re not alone in this, and the sooner you learn how to keep your investors up to date, the better.
In this article, we will speak about investor reporting:
What it is;
How to write an investment report to potential investors;
Which metrics to include;
Tips on how to make investment reporting easier.
Let’s dive in!
What is investor reporting, and why do startups need it?
Investor reporting is the process of updating investors on your startup’s financial health, business progress, and main problems on a regular basis.
Once you get a check from investors, make sure you keep them in the loop about what’s working, what’s not, and where their money is going.
Typically, startup founders update their investors on a quarterly basis, but sometimes, this may also be monthly updates (mostly for early-stage or high-growth companies) or even yearly (more for mature companies).
You may deliver your investment reports through several channels:
Email updates: The most common method, as you just need to send an email with major updates.
PDF or a slide deck: Some founders may take this way and send VCs a more formal investor report in PDF format or as a short slide deck with financials, metrics, and company updates.
Investor dashboards: You may also use investment reporting tools like Visible.vc or Carta and give VCs an opportunity to track performance in real-time.
Data rooms: In case you have sensitive information in your report, it’s better to store it in a secure data room (for example, DocSend).
Why do startups need investor reporting?
Of course, the main reason is to keep investors informed about your company’s progress, performance, and the use of funds.
But if we get into more detail, we’ll see that an investment report has more benefits because it:
Builds trust between you and investors: They want to know everything that is going on behind closed doors of your company—whether it’s good or bad. If you send them reports regularly, it shows you’re honest, in control, and make decisions based on data, not your wishful thinking.
Helps secure future funding: You send updates, which keep investors warm, and voila, your next round is closed faster and easier. As they have already seen your reports, they may have more confidence in your growth and potential, and, thus, more willingness to reinvest.
Helps make smarter decisions: Don’t think that investor reporting is only for VCs or angels, of course not. It’s also good for you. When you constantly track revenue, burn rate, and growth metrics, you better understand how and where your business is moving. So, if you see that your numbers aren’t good enough—your MRR/ARR or NRR are dropping, churn is growing, etc.—you find out on time and can solve it before something really big happens.
Gives you support beyond money: Investors have not only cash but also networks, experience, and resources. But how can they help you if they don’t know what’s happening? When you constantly keep them in the loop, this gives them an opportunity to introduce you to new hires, partners, or even customers if you need them.
What to include in an investment report?
Investors often want to see three things in a report: how you’re using their money, how well your company is performing so far, and if there are any major product and business updates.
Let’s get a closer look at each aspect of investor reporting:
How you’re using their money
No surprise that investors want to make sure their money is being wisely and strategically spent. That’s why they zoom in on how much cash you spend every month (burn rate and cash runway), what you spend this cash on (product development, hiring, scaling, marketing, etc.), and if you actually make a profit (do you have a clear path to profitability?).
How well your company is performing
Investment performance reporting speaks for itself—it shows your startup’s performance. And surely numbers speak louder than words, so show investors KPIs that matter the most to them.
First of all, investors want to know what has already happened in your company and what its current situation is. Here, lagging indicators work best, as they help investors look into the past and present:
Revenue (MRR, ARR, YoY growth);
Gross margin;
Churn rate;
Burn rate & cash runway;
Customer growth;
Net profit or EBITDA;
MAU & engagement metrics (most relevant for SaaS businesses).
Note that KPIs you need to include in your investor reporting may differ across various business models.
As investors typically invest in your company’s growth and scaling potential, what they want to see even more is how you plan to spend the rest of their funds and how much revenue you’ll make in the future—your leading indicators:
Sales pipeline & conversion rates;
Hiring plans;
New contracts & partnerships;
Market entry strategies and expansion plans;
NRR (net revenue retention);
Marketing ROI & lead generation metrics;
Customer pipeline.
Related read: Leading vs. lagging metrics: Indicators and KPIs
Beyond KPIs, your investment report should show how you plan to allocate resources, and the best way to do this is through a P&L (profit and loss) statement. As such, you can communicate your staffing, sales & revenue forecasting, and expenditures. However, if your cash runway is shorter than expected, you need to show your strategy for extending it—whether through cutting costs, increasing revenue, securing bridge financing, or going for another funding round.
Major product and business updates
Aside from all the nitty-gritty financial details, investors want to know about the big milestones your business will hit.
Maybe you’ve launched a new product or added new features to the existing one. Or you’re acquiring new distribution channels or signing big deals. You may even hire new team members and make the company’s culture better. This all matters to investors in the same way as KPIs and funds use. So, show it in your investment report as well.
How to make investor reporting easier?
Most founders either don’t know how to build an investment report for potential investors or simply find it tedious or even unnecessary. To make your life easier, we’ve collected some tips on how to deal with investor reporting better.
First of all, automate wherever you can. Preparing an investment report manually every month or quarter is hard. But when you use investment reporting tools like Visible.vc, Carta, or Baremetrics, the process can become faster and easier. With their help, you can track KPIs, make investor updates, and share financial data.
One more important thing is to make your investment reports clear and concise. Busy investors don’t have time to cut through the woods of your hundred-page report. Save their and your time and focus only on what truly matters.
You may use charts and visuals to make the information more digestible. Also, try to avoid too many details, and speak not only about the good stuff but about the bad as well (and, of course, how you plan to fix these problems).
Be honest and transparent. Sooner or later, investors will find out about the problems, but if you hide them, their trust may be lost for good.
Wrap-up on investor reporting
How can you build trust with investors, raise future funding, and make smarter business decisions? If your answer is, “I must have a cool product, traction, solid financials, and a killer pitch deck, reach product-market fit, and hire the right team,” you’re right—you must.
But what many founders may not realize is that regular investor reporting is as important for their fundraising success as all the above.
Even though it may seem hard and of no use, investment reports should be a part of your routine as a startup founder.
When you update investors regularly, you keep them warm for the time you’ll need to raise your next funding round. You can also get access to their non-financial support. Investor reporting is not only for investors, it’s also for you—you can see what works and what doesn’t and will be able to make changes on time.
Remember that you don’t need to craft your investment performance report manually, automate the process. This will help you save time and avoid errors. And also try to keep everything clear and concise.
If you need help building investment documents, fundraising, or growing your business, contact our Waveup team.