The Importance of Investor Updates

Investment Reporting: The Importance of Investor Updates

Sometimes being an angel investor reminds me of dating. Initially, the entrepreneur is all chatty — emailing, calling and texting me. There’s all this communication to get me on board.

Then we do the deed, my check clears, and, boom, radio silence. I hear nothing from the entrepreneur for months. And even then, it’s in response to my emails and my calls. The entrepreneur is busy chatting up his or her next conquest, whether that’s another investor or a customer.

Of course, not all the founders of my portfolio companies are this uncommunicative. Most send regular monthly or quarterly updates. But for those of my current portfolio companies that don’t send regular updates; companies I don’t yet know seeking funding; and entrepreneurs who happen to think I have something useful to say about dealing with investors, here are six reasons why you should send regular investor updates:

The Benefits of Investment Reporting

1. It will help you be a better entrepreneur. Writing a regular monthly or quarterly update to other people will help you think more strategically about your business. Most of your time as a founder has you down in the trees, building a product, selling customers, and so on. Looking occasionally at the forest will help you better set the strategy and direction of your company.

2. It keeps your investors engaged. You know the expression “out of sight, out of mind”? It applies to angel portfolios. If I don’t hear from one of the companies I invested in, I forget about them and think about the others. That’s bad for the entrepreneurs who don’t update me. I don’t know they need a connection to other investors or help finding a key employee or a contact at Fox News. So I end up doing those things just for the other companies in my portfolio.

3. It allows you to avoid surprising investors. If you send people regular updates, chances are much better that you will not have to let them know about nasty surprises that are too late to fix. No one wants to hear bad news about a company, but it is far better to hear, say, that a company’s burn rate is too high and the runway is getting shortened by a month at every monthly update than it is to hear nothing for nine months and then to get a call that the company isn’t making payroll next Friday. With the former, investors can notice that there’s something amiss and help to fix it. With the latter, it’s probably just going to be too late.

4. It helps you raise your next round. Most start-ups will need more money than what they have raised thus far, regardless of how far along they are. And investors are human beings. They don’t want to just hear from you when you are asking for money. They want to hear from you about your company. Remember they invested in your company because they want to see the company develop. If they just want to have money flow out of their bank accounts to someone who asks for cash all the time, they will have kids instead. (Just joking, Shane children.)

5. It builds transparency. Angel investing only works if investors trust entrepreneurs. There are a lot of things that lead me to believe that an entrepreneur is honest and competent. But one of them is that the person regularly tells me what’s going on. If I don’t hear anything from someone for a long time, I think the person either doesn’t know what’s happening or is covering something up.

6. It’s only fair. Think about it this way. If you put a bunch of your hard-earned money into an investment that has an 80 percent chance of being lost forever, wouldn’t you like to know what’s going on with that investment without having to ask?

That’s my message for today. In my next angel post, I will put up an annotated example of a good angel update.

Update Photo via Shutterstock

Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.