As a founder, it’s important to keep your investor(s) informed of what is happening in your company and how things are expected to play out. One effective yet underrated way to do this is by sharing regular investor updates. There are no hard and fast rules but based on my experience, I will discuss some standard processes that can help maintain open communication and transparency, which is the foundation of a healthy founder-investor relationship. 

What is an Investor Update?

It is a letter from the founder to investors containing the latest updates on key financial and business metrics, important updates, challenges, and requests for assistance. The aim of these updates is to build trust and engage investors in the company-building journey.

Why Should Founders Do It?

1. Building trust: Regular and transparent communication from founders is an effective way to build trust-based relationships with investors.
2. Preparing for the next funding round: Investor updates lay the groundwork for building a network through regular progress sharing. This keeps investors informed about the company, eliminating the need for founders to start from scratch when seeking future financing.
3. Having access to a larger resources pool: Investor updates enable founders to share their needs and challenges with a group of people who have greater access to resources such as talent, capital, or technology. By seeking specific support from investors, founders can increase their chances of success.

Some Key Points to Remember

1. Frequency: Monthly updates are standard, but quarterly updates can also work depending on the stage and nature of your business.
2. Consistency in metrics: Choose key metrics that accurately reflect the business situation. Avoid constantly changing metrics based on their performance. Trust and support can only be expected when you maintain integrity from your end.
3. Clear and consistent format: Take the time to develop a proper communication format. Keep it consistent to help readers become familiar with it and extract insights over time.

Preparing an Investor Update

1. Set the stage: Investors are busy people who receive hundreds of emails from different companies every day. Start your investor update mail with a brief overview of the content to help investors understand the purpose of the update.
2. Add financial metrics with qualitative discussion (chart doesn’t hurt): Share key financial metrics such as Revenue, ARR, Gross Margin, Contribution Margins, EBITDA, Burn rate, and Runway. Don’t just drop numbers. Include qualitative information and relevant context to demonstrate the reason behind the financial metrics.
3. Share user metrics and product updates: Highlight key product/user metrics like DAU/MAU, user acquisition (absolute number and growth rate), retention rate, and activation rate that indicate your product performance. One metric that new founders often neglect is the retention rate. It provides insights on the quality of your product from the user's perspective as high-value products will usually have a high rate of customer retention. Make sure to provide updates on key product changes as well.
4. Highlights & lowlights: Be transparent about your wins and losses. Your investors know startups are hard so there’s no need to paint a rosy picture. An honest founder is much better than a sweet talker. In the highlights section, present wins like reaching milestones and significant progress in the business. In the lowlights section, be candid about the setbacks and areas where performance didn't meet expectations.
5. Notable updates: Use this section to update investors regarding significant events or changes within the company that have occurred during the reporting period. This could include new hires, product launches, partnerships, or other key developments.
6. Ask: Engage your investors in your company-building journey by clearly sharing your support requirements. Your investors have a large pool of resources that can solve your problems. Be specific about how your investors can help. Utilize the opportunity to access their expertise and networks.‍
7. Express gratitude: End the update with an expression of gratitude towards the investors for their support and assistance, increasing the likelihood of receiving help in the future.