One of the more interesting things I’ve been able to observe this past year is how seed stage startups communicate with their investors. As a Venture Partner at SoftTech VC, we have a growing portfolio of early-stage companies who send reports to us and as the CEO of Bionic Panda Games I try to do the same for the folks who are involved with our company.
Many seed stage companies that raise money on convertible notes do not have outside BOD members or regular BOD meetings. The “nice” thing about regular BOD meetings is that they are an opportunity to talk about the most important issues facing your company and get feedback from your investors.
In the absence of formal BOD meetings, I think it’s a good practice to keep your investors up to speed on what’s happening with your company. There are four things I try to include in my monthly update to investors and that I find helpful to get from our portfolio companies:
1. Are you going to run out of cash in the very near term?
This one is the most important one, in my opinion and should always be an above-the-fold item in the summary. Giving investors a sense for how the company has performed in the past 90 days helps smooth out monthly variations and gives investors a sense for how burn is trending. One simple thing to do is to just show a very high level P&L for the last three months including revenue (if applicable), expenses, net burn, and closing month’s cash.
The reason that three months helps is that it gives you a sense of trend. With those three data points, an investor can look at how your net burn is trending and figure out when you’re like to run out of money and when you’re likely to need to raise money. This is super helpful because investors and entrepreneurs don’t always have the same sense for a) how low closing cash should be allowed to go before taking action (raising money, cutting burn, etc) and b) how long it will take to raise new money and under what terms. You can avoid surprises over your cash position and cash needs by doing something along the lines of what I’ve suggested above.
2. Have you decided to make any major changes to strategy or approach based on what you’re learning about your target market?
Of only slightly less importance than cash position is whether you as a company have made or are considering making any major strategy changes. This can be anything along the lines of slight pivot from the original idea to a total pivot in a new direction. One thing worth considering, though, is whether the magnitude of the change is something that should be communicated in a monthly status update or discussed with your investors in person or on the phone. Shifting 10-20 degrees in terms of product and focus? Going to be a bit late on your launch? Probably not a huge deal. Planning to pivot and address an entirely new market? Doing something else drastic? In many cases, a monthly status update is not the ideal way to deliver that information unless the change has been in the works for some time.
3. Are there any important issues related to the team or internal workings of the company that are worth discussing?
This one is usually pretty straightforward. Have you made any key hires? Have any key team members left? Any other issues on the team side worth bringing up? Again, if there are sensitive issues (co-founder planning to depart, HR issues, etc), a monthly email update might not be the best way to address them.
4. How are you tracking against your core KPIs?
Even pre-revenue startups have some key performance indicators (KPIs) that they track regularly. It could be monthly active users, registered users, funnel conversion metrics, etc. What are those metrics for your business and how are you tracking against them.
This list is by no means everything you could include. Important product updates, press mentions, asks for help and assistance, fundraising plans, and a host of other things are all worthy of inclusion. But I think the four points above are the bare minimum to include.