Do Founders Get Value from Investor Updates?

Most investors eventually ask founders to send monthly email updates. These updates can seem like a tedious task, akin to your parents asking you to call them every week when you go to off to college. Since founders are busy and writing takes time, it's tempting to skip updates and hope no one makes a fuss. Besides, monthly check-ins only benefit investors, right? Wrong. Almost every founder that I've talked to finds the act of writing updates valuable, often to their surprise. Here are some of the key benefits of sending updates, from most obvious to most subtle:

Updates are a scalable way to deliver news and to ask for help

If you have fifteen investors in your seed round, and each of them asks for an update every 3 months, then you're going to be sending an average of 5 updates per month. Sending one update per month to everyone will save you a lot of time.

Similarly, if you have three areas where you'd like help, you can think about which investors can help with each area and email them individually, or you can list all of the areas in a single email that goes out to everyone -- a much more efficient approach.

Updates help you see the bigger picture

Seed-stage founders spend a lot of time fighting fires, focusing on key accounts and projects, and handling basic tasks like bookkeeping and searching for office space. It's easy to spend weeks or months in the trenches without ever having a chance to step back and think about big picture questions: is your company growing at a healthy pace? What are the company's strengths and weaknesses? What went wrong in the last few weeks and what can you learn from it? Writing an investor update forces you to sit down and think explicitly about questions like these.

Updates show respect to investors

Spark Capital's Nabeel Hyatt posted an insightful comment a few days ago:

Investors are not just check signers -- they are people, too. They are investing their time and their conviction as much as they're investing their money. When a seed fund offers you a term sheet, they're telling you: "Of the 1,000 companies and founding teams that we're going to look at this year, you're one of the top 10 that we'd love to work with most." As an investor, I assure you that that's a very heartfelt offer, and that feeling like an outsider after investing hurts.

Investors want to feel like partners, not like bystanders. Not providing updates proactively is like never talking to your parents unless they call you: it's fine, and no one is saying you have to call first, but investors (and your parents!) will really appreciate it if you keep them in the loop about what's going on.

Updates help you build meaningful relationships with investors

Here's a scenario I've watched unfold several times:

  1. Angel Alice invests in Founder Fred's company.
  2. Fred's startup chugs along for a year and business is great.
  3. During that time, Alice tries to contact Fred a few times, but he is busy and replies sporadically at best. Alice doesn't feel particularly close the company or to Fred.
  4. A year in, Fred emails Alice and says, "Hey, thanks for your support last year! My company is doing well, and I'm about to go raise my Series A. I saw on LinkedIn that you know Bill at Benchmark. Do you think you could introduce me to him?"

Alice is in a bind. She clearly thinks Fred is a good founder working on a useful project -- after all, that's why she invested in the first place. She also obviously wants to help the company find a great lead for its Series A. However, she's had very little interaction with Fred, and Bill is probably super busy, which makes it very hard to write a strong introduction. If she had been well-informed during the previous year, it would be different, and Alice could tell Bill how Fred is an amazing founder, and how she was impressed with the way that Fred dealt with a tough situation, and how the business is growing 70% each month. Alas, Alice is not well-informed, so she can't say any of those things. As a result, she either refuses the intro request (e.g. "Sorry, I don't know Bill that well") or she sends an intro that is weak and nondescript. Neither scenario helps Fred, and both result from not having a close founder-investor relationship.

Regular investor updates go a long way toward building these relationships. At a minimum, everyone will be up-to-date on how things are going. More likely, a lot of investors will reply to a founder's emails, even if it's with something trivial like, "Looks like August was another amazing month!" A lot of investors will also offer to help, or will offer encouragement or advice when your run into adversity. It's cynical to send updates solely so that your investors will help you raise your next round, but sending updates will definitely help you with your next round: you'll get more intros, you'll get better intros, and you'll get advocates who help convince notable VCs to invest in your company. You'll get all of that because you respected your investors' personal commitments, not just their financial commitments, and because you built meaningful relationships with them. 

Updates help you when you don't know what you don't know

Most investors work with a lot of companies (often 10 or more). Being exposed to so many companies at once reveals patterns that might be invisible to a single founder.

For example, if another company doesn't want to pay you for a pilot, do you know if that's common or if they're trying to screw you over? If 37% of your users come back to the site every month, is that high or low? Should a 4-person startup hire an office manager? Investors are very like to know the answers to these questions, and if they don't know, they're in a good position to survey ten or twenty startups and summarize the results for you.

An even more dangerous scenario is when a founder doesn't realize that something is off. For example, maybe he started 30 pilots over the course of ten months (which is usually way too many pilots). If he had been keeping investors up-to-date, one of them might have eventually remarked that ten pilots is plenty, and that if none of the ten turn into paid contracts then the problem is with the product and not with the lack of potential customers.

The theme here is that if an investor doesn't know what you're up to, they can't reach out to you when something seems out of whack. For that reason, updates are an amazing opportunity to learn about what "you don't know you don't know" because you can write a couple of paragraphs and include several bullet points about what happened since the last update, and proactive investors will chime in as appropriate.

If you're a founder, I hope this list of benefits is compelling enough to give monthly updates a try. If you're not sure what to write, check out this template.

Tags: Investor Updates
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