First-time entrepreneurs don’t always understand that outside investments come with a whole slew of new responsibilities and relationships.
Your investors are the first people who can help you when something goes wrong. Tweet This Quote
This is made quite clear by venture capitalists, where the norm is monthly board meetings for the first year or two after an investment closes. For angel-backed startups, too often the investors’ expectations for communications are not met by the entrepreneurs, as there is no startup manual that explains the norms to entrepreneurs. However, the norm is simple. Every month, send an email to your investors.
There is no one perfect template for that email. The TechStars format is good: good, bad, ugly, KPIs, questions, asks. Y Combinator’s key stats are nice too. Monthly financials never hurt. An update on cash in the bank and number of months before that cash disappears is awesome and more efficient than digging out that information from the accounting.
Many entrepreneurs hide all of their troubles from outsiders, but investors are not outsiders—they’re business partners. Tweet This Quote
The key to all of this is to keep your investors informed. Tell them the bad news, not just the good news. Ask their help with the current hurdle. Don’t surprise them with an imminent need for more funding.
Many entrepreneurs hide everything that troubles them from outsiders. Investors are not outsiders. They are your business partners. More importantly, they are the first people who can help you when something goes wrong (and something always goes wrong). Each time you send an update, you build trust with those investors, increasing the odds that they will provide the necessary help. With each month that goes by with no news, investors start to fear the worst (all experienced investors have been through startup deaths), losing confidence in both the startup and its CEO.
Each time you send an update to your investors, you build trust and increase the odds that they will provide the necessary help. Tweet This Quote
Too often, I’ve seen this play out poorly, with an entrepreneur silent for a year, then urgently asking his investors to extend the company’s convertible note due in less than 30 days. I’ve seen this play out well, where good updates led to the investors covering an urgent need for capital.
I’ve also seen the ultimate goodness: a company failed, but most of the investors brushed it off and invested in the entrepreneur’s next venture, due to the great relationship built on great communications.
A version of this post originally appeared in Luni’s blog.