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Investor Reporting: Five Things to Think About
Tim O’Reilly recently wrote a great essay on the virtues of not raising external capital. It led me to reflect on one aspect of having outside investors that can feel like a gigantic chore — reporting. This is irrelevant if, like Tim (or Craig Newmark), you haven’t raised external capital. But if you have, these five guidelines might be worth considering:
Figure out the right level of detail.
Both enterprise- and consumer-facing businesses, once they reach a baseline level of scale, spit out an incredible amount of data that can be sliced a million different ways. There are two implications to note here: (a) it’s easy to fall into the trap of snowing everyone with data and fooling yourself that this is valuable; and (b) it’s also easy to get overly focused on quantitative metrics. The latter can lead to forest-for-the-trees issues as so much of early-stage company building has to do with non-quantifiable elements.
I saw this recently in a board meeting for a post-Series A company. Not that the company itself had lost focus — it is one of Amasia’s most product- and customer-focused businesses — but that when we came together to speak about the business, we were running the danger of being too far in the weeds on the minutia. I have no silver bullets as you do want to also keep quantitative metrics in mind — there is a balance to be mindful of and work on.
Generate two versions.
One challenge with the rhythms of venture investing in this era is that companies often enter a Series A or B process with a large group of shareholders who came in prior to the Series A. This leads to paralysis on sharing information, and since the days are long, the default is “do nothing” which is the wrong answer. Your pre-Series A investors may well be candidates to lead future rounds or find folks who can do so — plus keeping them updated is the right thing to do.
Many of our CEOs have an efficient solution — while pulling together a more structured board reporting package, they spend an hour or two a quarter crafting a more informal yet data-rich email that goes to all shareholders. They find the process of writing the email helpful in reflecting on the state of the business, and it engenders respect and confidence from all their shareholders.
Focus on reporting early.
This gives you the breathing room to figure out which pieces of information really matter for the business. This is really, really important for pre-Series A companies. It is also hard to implement, because pre-Series A pass-the-hat rounds often have no single investor who is deeply committed to working through this (and other issues) with the company.
With one of our companies that may contemplate a Series A next year, 18 months went by with sporadic investor communication. A “sit down” occurred and dramatic improvement resulted. But: (a) the concern now is whether this team has a handle on the information that matters as it steers the ship; and (b) the team likely now feels that they are generating verbiage just to keep investors happy, as opposed to needing to have the right information to run the business. This could have been easily avoided with early dialogues right after the seed round, and I would encourage founders to do so.
Attempt to benchmark.
Benchmarking is one of the most valuable things a company can do yet is one of the weakest areas of internal and external company reporting at all stages. It’s not easy because good benchmarking data can be surprisingly hard to come by.
At Amasia, our portfolio tends to skew towards management teams and businesses that are capital efficient. Our bias is for companies that can thrive in good and bad financing environments, and don’t find themselves staring at the abyss. So of late we’ve been pushing all our founders to benchmark against capital efficiency metrics. This is not for us as the nitpicking investor — it’s for our teams as essential operating metrics that just happen to be reported to investors/boards.
Make sure you need the information yourself.
And along those lines: one way to feel better about investor reporting is to share that which you feel you need to manage your business. If you need to generate the information anyway, then an investor report is simply a matter of formatting (and perhaps not even that).
Be prepared, however, for feedback that will push you to pull together information that you should be tracking but haven’t. At one of our post-Series B enterprise SaaS companies, a substantial portion of the business is outside the U.S., and we just weren’t getting any insights (quantitative or qualitative). Requests such as this can seem irritating; best to step back and ask whether you need the information anyway. In this example, we got it, and it told all of us, including management, some rather important things.
I hope this is useful. All comments welcome.