Being an early stage investor I usually find companies without a dedicated finance manager or other ressources helping the founding team to assemble a decent investor reporting. Depending on the teamsize and maturity of the business it’s usually the founder (or one of the founders) who is responsible. In almost every case I invested in, doing a good reporting is not the first thing that comes to the mind of entrepreneurs. Ressources are extremly tight and founders are so busy with getting everything done.
However, taking investors on board changes the game for the founding team and comes at the responsibility to deal with your new shareholders. You need to keep them informed and up to date. Having been in the shoes of an early stage tech venture myself I know that this can be painful. Nevertheless, there is no way around it and entrepreneurs need to find a good compromise here between time-consuming reporting and bullet point emails.
How to create a good investor reporting
Allmost all investment and shareholder agreements contain contractual clauses demanding monthly, quarterly and yearly reporting to be delivered within a certain timeframe after the end of the respective period. Most of them also define minimum requirements as sending economic evaluations (in Germany: BWA) from the tax advisor or following a pre-defined reporting scheme.
It’s rarely the case that founders bear those clauses in mind in their day to day business. So, establishing an efficient reporting routine is a joint effort of founders and investors. Over the years I have gone through (too) many discussions regarding the content and purpose of reporting. That´s why I wanted to share my learnings and tips to create a good investors reporting and why it also benefits the founders to establish a good reporting practice.
What to include in the investor reporting
There are many reporting templates out there providing a basic structure for what to include into your investor reporting. The main question investors want to get answered is whether or not your business is on track with the plan. So make sure you that you do a proper reporting and answer how the actual performance compares to the plan that was the basis of the investment decision. Even more important than that is to reassure your investors that you are on top of things and that you know which key metrics are driving your business and that you are conciously and critically steering your company in an informed and responsible manner.
From my experience these are the most important items your reporting needs to cover:
- Provide an Executive Summary that summarizes the most important points of your investor reporting
- Financial Information
- P&L for the current month and year-to-date including a plan / actual comparison
- Cashflow for the current month and year-to-date including a plan / actual comparison
- Cash on bank including a plan / actual comparison
- Economic evaluations produced by your tax advisor (or your internal accounting)
- Comments on unusual revenue or cost items as well as on high deviations compared to the plan
- Rolling forecast for the year or a pre-defined timeframe, e.g. 6 months
- Marketing & Sales
- Development of existing clients and leads
- Current sales pipeline including details regarding the most promising opportunities
- Relevant KPIs for your business model, e.g. cost of lead generation, conversation rates, avg. order volumes, added mrr etc.
- New hires, leavers, etc.
- Other relevant team related items
- Product & Product Roadmap
- What are the key product development projects?
- How long will it take to complete them?
- When will they go live?
- Provide forecasted costs, if relevant.
- What are your competitors doing?
- What are your competitors doing?
- All other internal or external issues you are facing
- Upcoming important dates and deadlines
Tips for creating a great investor reporting
Here a are may key learnings on how to create a decent reporting and they could benefit from that too:
- Define the relevant key metrics and KPIs for your business, measure them accordingly and report them transparently.
- Agree with your investors on a structured reporting covering all the different sections.
- Make sure your tax adivsor is aware of your reporting deadlines and can deliver on time. Go for a tax advisor who accepts submitting documents digitally.
- To keep the effort of creating the investor reporting at a minimum you should automate as many tasks as possible. Among others this includes:
- setting up a financial model that can process actuall numbers from the closed month as basis for your forecast
- implement tools that help to visualise the most important facts and figures so that you just need to copy and past them into your reporting document
- Make use of tools that enable you to send viewboards or read-only access to your systems (e.g.read-only links for your sales pipeline or product usage KPIs).
- Keep in mind that investors are managing a portfolio and that they are not dealing with your business on a daily basis. Use visualisation tools to bring across your message and explane the metrics you are tracking and what they mean.
- Reporting is not only a boring must-do activity for your startup. Its an opportunity to take a step back and see how your business is performing and what needs to be improved. Put yourself in the shoes of the investors and imagine what your thoughts would be, if you would look at the reporting as kind of an outsider. What questions would you have?
Provide a sufficient narrative to the numbers prevents unnecessary questions.
- Make sure you follow an analytical and honest approach when producing your reporting. One can always debate on how to interprete certain developments. However make sure you analyse your performance objectively and don´t shy away from being brutally honest with yourself and your team.
- Proactively ask your investors for help. Delivering a reporting is not a one-way road. Involve your investors and call for their help on critical issues.
- Offer periodic reporting calls to answer questions. Instead of dealing with investors on a one by one basis you should offer a monthly opportunity to ask questions about the reporting. You should schedule those days in advance and sent out the invitiations early. Don´t even try to find a date that suits all of your investors.
- Follow up on issues raised in precedent reportings. If you highlight certain facts like events, promising leads or problems in the reporting make sure you follow up on them in the next reporting until they have resolved or settled somehow.
- Save your reportings your data room, so that you can provide them during your next due diligence.
Too often entrepreneurs see reporting as a bothersome duty. It’s true, no one gets rich from doing a good reporting. But founders and investors can equally benefit from a good reporting. It provides the opportunity to reflect on the performance of the business while taking a step back and look at the big picture. An honest and analytic approach will help both sides to find out what needs to be done to make the company performing (even) better. Installing tools and implementing procedures to automate most of the reporting tasks can keep the time and effort to a minimum and fosters a trustful relationship between founders and investors.