The underestimated superpower of reporting
Investor reporting is often seen as a necessary evil by startup founders. It's time-consuming, tedious, and can feel like a distraction from the real work of building a business. And why do the investors need it anyway? Most of them do not even respond to reporting emails.
With reporting, it’s a little bit like cleaning and tidying up your apartment. It will go well for some time if you don’t do it, but once you reach a certain tipping point, you will drown in chaos.
Next to maintaining your “hygiene”, reporting can be much more and become one of your superpowers that help you to raise money and improves your business performance.
Let’s see why!
Accountability is Key
It's not just about keeping investors informed, it's also about building a culture of transparency and accountability within your company. Reporting serves as a good starting point to define your KPIs and business metric that you want to track.
When you're reporting regularly, you're forced to take a step back and assess your progress, identify areas where you need to improve and make necessary adjustments. You are holding yourself accountable, but you also have a tool to distribute accountability internally.
Even if you don’t share the reporting, accountability and tracking your KPIs are two of the most essential for your success anyway!
Essential Hygiene
In addition, if you don't do reporting or only do it irregularly, it will eventually backfire. The infamous example of missing reporting is the following:
You as an investor did sign the round and never really heard again from the startup over the following months. On Christmas, you receive an email that everything is going great - Merry Christmas. In February, you receive another email that the money will run out in March because sales are lacking behind and they need an urgent bridge to keep the company alive.
Would you do it?
The example is not even an outlier case and actually happens more often than you think.
At an early-stage, where your angels are the only of your investors, hearing nothing means trouble. If you don’t report, your investors will start to lose trust in you. They will not only be less likely to give you money again but also will probably not recommend you to their network. After all, there also is a thing called familiarity bias. The more often you appear regularly in your investors inbox, the more they will identify with you and express sympathy towards you. Additionally, you will be on top of their mind more often, which fosters their proactive help.
The Power of Transparency
Only an informed investor can be a good investor. That's why it's so important to be transparent with them and talk about your problems openly.
This means sharing all of the relevant information with them, including your financials, your progress, and your challenges.
Involving investors with your problems and asking them for help is the only way of truly leveraging their experience. Investors have a wealth of experience that they can share with you. But they can only share that experience if you're willing to be open with them. So don't be afraid to ask for help.
When you're transparent with your investors, you're building trust. Trust is essential for any successful relationship, and it's especially important in the context of startup investing. When investors trust you, they're more likely to be patient with you, give you the benefit of the doubt, and provide you with support.
Create an Open Feedback Culture
Early-stage investors do not just want to invest money but also want to join your journey. So involving them in your decision processes makes them automatically more engaged and committed.
When angels feel like they are part of the team, they are more likely to support you with your upcoming challenges.
Of course, there will be times when you don't follow an investor's advice. This is perfectly normal. But it's important to explain your decision, even if you don't agree with the investor. This shows that you have considered all of your options. It also shows that you are willing to listen to feedback, even if you don't agree with it. Just try to be respectful and open here, as nothing is worse than investing time into a feedback session, only to realize months later that the company has done the exact opposite of your advice and run into trouble because of it.
Get Ready for Your Next Round
This one might be obvious for many good founders, but it’s just as crucial to consider. Consistent reporting enables you not only to guide your decisions based on data - it also provides data for your upcoming financing rounds.
If you continuously challenge your reporting data with your current investors, your next Due Diligence will become a walk-in in the park when it comes to providing correct and applicable data.
In addition, it also often helps to share (some form of) updates with your prospective investor targets. If you keep them up to date and demonstrate ongoing growth, it will help to create a solid relationship and conviction of your case.
Conclusion
Investor reporting is not just a necessary evil. It can help you to raise money, improve your business performance, and build relationships with your investors.
To use investor reporting to your advantage, focus on the key metrics that are important to your business, be consistent with your reporting, and be responsive to your investors' feedback.
So don't view investor reporting as a chore. See it as a superpower that keeps you accountable and therewith enables you to achieve your goals.
Are you a founder and currently raising?
Hit us up, we are happy to connect: www.jvh-ventures.com/pitch