How to Build the Perfect Investor Report

Sharing crucial qualitative and quantitative data with your financial investors is known as investor reporting. Depending on the stage and vertical of the company, investor reporting can take on different forms.

A pre-revenue startup may provide a brief, qualitative investor report.

In contrast, a publicly-traded company must provide a comprehensive report that includes everything from executive compensation to detailed financials.

Investor reporting is an essential aspect of running a successful business, whether a company has two founders in a garage or 30,000 people spread across the globe.

The importance of investor reporting differs significantly if the company is a startup or a privately held company. Instead of focusing on releasing financial and legal information so that the general public may make an informed investment decision, a startup often leverages a report to engage its investors and co-opt them into building the business.

Tell Me More About Investor Reporting

A privately-held firm (startup), unlike a publicly-traded company, is not required by law to report to its shareholders. On the other hand, the numbers suggest that it is good for companies that have taken on venture funding to practice investor reporting. In addition, companies that connect with their present investors regularly are twice as likely to raise follow-on funding.

Investors provide capital throughout the company’s life and assist by providing valuable advice, expertise, and networks. Therefore, after a startup has acquired investors, it needs to focus on keeping investors satisfied, maintaining their faith in the company’s product, and leveraging investors’ knowledge and skills to grow the business.

Why Is Investor Reporting Important for a Startup?

For startups, investor reports are essential. It’s crucial to keep investors informed about changes the company goes through. Investor reporting also helps in building trust with them.

Some of the information that founders need to share is financial peaks and valleys, new expenses, market shifts, and key hires.

Entrepreneurs must report from the moment they receive funds; these reports allow investors to see how their money is being spent and how the companies perform.

Best Practices for Investor Reporting

The investor report should provide the investors with a snapshot of the company’s trajectory. The company must demonstrate to its investors how they are meeting financial goals and keep investors updated on any roadblocks that require assistance. For best practices to follow for investor reporting, here are some:

How often?

Once a month is good enough if the company has enough progression to show: revenue, business operations, traction,  etc. If not, quarterly reports are acceptable and may be a suitable option if the company is still in its early stages.

To whom to send?

Although the first responsibility is to investors, sharing information with advisors is good.

Consistency is key

Both the frequency and format of the updates must be constant. Consistent formatting makes it easy for investors to compare reports, and consistent reporting builds trust.

Give a comprehensive picture.

These areas are included in most investor reporting:

• Highlights and lowlights express the major points in a scannable format;
• Financials and KPIs, which include specific metrics that measure your company’s performance;
• The customer wins highlight unique customer tales and data such as net promoter scores or milestones.
• Business updates such as interesting and important changes to your team are shown through key hires, marketing hits, and misses, new partnerships, international expansion plans, press updates, etc.
• Updates on products are essential for investors to be aware of and understand changes in product strategy, such as new versions, UX/UI, new features, platforms, and so on.
• Notable events are milestones in the company’s history that can be separated into successes, failures, and challenges. Anything a company believes is extremely critical to the company’s success, big or small, must be a part of investor reporting.
• Funding, mergers, and acquisitions – because startups move so quickly, investors must know if anyone has contacted the company, the terms of new rounds, lead investors, etc.

Good news versus bad news

It’s essential to remember that investors will notice if something doesn’t appear to be quite right. They are busy people who want direct and honest information, and identifying the issues that a company faces is usually the most appreciated aspect of investor reporting.

Identifying the company’s challenges and commenting on the actions being taken to handle the problem is important to include in the investor report.

High-level versus detailed

While your shareholders are unlikely to go over your financial records with an in-depth examination, they certainly are not interested in reading through numerous pages of text discussing everyday transactions.

Therefore, it’s critical to find the correct level of detail and strike a balance between quantitative and qualitative information.

Financial information should be centered on core measurements and KPIs, with a brief description of critical points for business development, personnel, and the product/service pipeline in the larger commentary.

Needs

The “needs” component of investor reporting is critical for an entrepreneur. This is where you ask for specific help from your investors. Assistance, referrals, and funding are the three categories of requests:

• Asking for help involves seeking advice from investors, reviewing materials, or anything similar.
• Asking investors to refer a client, a new hire, or another investor (referrals).
•  Asking investors to participate in a future financing round (funding).

Key metrics

Peter Drucker, a Management Guru, once said, “What is measured, improves.” Metrics are excellent indicators of a company’s progress, strengths, and weaknesses. Without a doubt, metrics should be included in startup investor updates.

These metrics can be used to track KPIs: (1) additives, 2) cumulative, and 3) ratios.

Additive metrics are the absolute number of new items since the last month/quarter. Cumulative metrics show the total number of items at the end of the month/quarter, minus churn or loss. Ratio metrics show the percentage of measurements compared to other measurements. A rule of thumb includes at least one additive or cumulative metric with one ratio.

Changes in your key performance metrics from month to month provide a quantitative and objective startup assessment. Include 3–5 key financial, growth, and engagement KPIs.

Here are some metrics to think about as a company prepares its investor report:

• The runway (sometimes known as the cash runway) is the number of months your startup has before running out of cash. The longer your runway, the more time you’ll have to build and develop your startup.
• Burn rate is related to the runway. You can’t calculate your runway without knowing your burn rate.  It is the amount of money you lose per month.
• For a startup, certain financial metrics are required. One of them is revenue. The total amount of money the startup earns from the products and services it sells is referred to as revenue. While many startups merely look at their total revenue, breaking down revenue by type (recurring vs. non-recurring) and source can provide more information (products and plan levels).
• Customer lifetime value (LTV) is an important financial metric for startups with a recurring revenue model. The LTV informs how much money a startup can expect to make from a customer before they churn.
• Monthly recurring revenue (MRR) is a financial metric that SaaS startups and subscription-based businesses need to know. The amount of recurring revenue generated from subscription customers is MRR.
• The average revenue per account (ARPA) is another important financial metric for startups. It tells the average amount of revenue a startup makes from each paid account you have.
• The monthly recurring income a startup loses from existing customers is known as MRR churn or revenue churn. When a customer cancels their account, the startup loses all future MRR.  However, a startup will only lose a portion of customers’ MRR if they downgrade their account.
• Customer lifetime value (LTV) is an important financial metric for startups with a recurring revenue model. LTV tells the average amount of revenue you can expect to collect from a customer before they churn.
• Customer acquisition cost (CAC) is the average amount of money a startup spends to acquire one new customer. It includes any marketing and sales costs associated with acquiring customers. For Example, Advertising spending, sales, marketing software, marketing, employee salaries, and marketing materials.
• Gross margin is your total revenue left after factoring in the cost of goods sold (COGS). Gross margin gives a more accurate picture of the startup’s revenue.

The Bottom Line

Investors want to know where their money is going. If they’re kept in the dark, they can start to doubt their investments and even your leadership. Investors believe that organizations that communicate effectively perform better and are more likely to assist companies that communicate effectively.

When your investors have confidence in you and the performance of their portfolio, they’ll be more optimistic about the future and more eager to invest. “When confidence rises…investors desire to…invest at current prices,   When confidence decreases, so does spending and risk-taking.” When the news about the future is good, investors are said to be confident.

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