Please please please keep all your investors in the loop after investment

I’ve just invested $25K in your startup as part of your pre-seed round. It’s not your biggest investment, but I could’ve used that cash to take the family on a first-class vacation instead.

So why did I invest?

Of course, I hope it will provide a huge return someday. But experience tells me that investing in a pre-seed round, the odds of a serious return are in the single digits. And even if you do succeed beyond my wildest dreams, I’ll be too old and decrepit to enjoy the windfall by the time you reach that big exit.

If I was strictly looking at financial returns, the truth is I’d be better off investing in S&P index funds or rental properties.

But there’s another reason I invest in startups in general and yours in particular. It’s the driving force behind most angel investors. And it’s the reason I personally invest in climatetech rather than SaaS, even though the odds of success are even lower.

I invested in you because I believe in what you’re doing. I want you to succeed. I want you to solve a problem that needs solving. And I personally want to be part of your journey.

So what happens after I write you that check? For most of the startups that I’ve invested in, after the SAFE is signed, the check cashed, and I’m added to the cap table on Carta, I never hear from you again.

Perhaps you send out a yearly update listing all your great accomplishments. For most startups, I don’t even get that.

When an email from you lands in my in-box, it’s because you’re running out of cash and are asking me for more money. Or you’re being offered a really crappy deal from a bottom-tier VC that requires earlier investors to take a haircut. Only then do you send a hasty note asking for us to sign a docusign within the hour with little explanation.

I can’t tell you just how frustrating this lack of communication is for early-stage investors.

What Investors Want From Founders

We wrote a check to join your startup. Now we want to feel included. What does that mean? We want to be kept in the loop. We want to be part of the team. Tell us what’s really going on. With full transparency instead of marketing fluff.

  • Once a month, send out a simple update. Use the Paperstreet template. Don’t spend more than an hour. One page with a short bulleted list of announcements, achievements, product updates, challenges, KPIs, and asks.
  • Quarterly, send a more detailed update including basic financial statements and an overview of product development, sales, runway, and fundraising plans.
  • Yearly, send an annual report with full financials and hold a 1 hour investor update meeting on zoom. Review the year, discuss the strategy, and solicit input from investors.

Tell Us the Challenges Along With the Successes

Absolutely crow about your successes. Put a smile on our faces. Make us feel like winners for picking you. But tell us about the failures, too. Tell us about the customers who got away and lessons learned. Tell us about the product tests that went as planned, but also the ones that didn’t.

We invested in an early-stage startup. We know every day is 3 steps forward and 2.97 steps back. And that’s on a good day. So when you tell us about how wonderful everything is going, we have trouble taking it seriously.

When you tell us only the good stuff, we don’t feel like an insider. We don’t feel like part of the team. The good news we can see on your LinkedIn announcements. We want to know what’s really going on. And we want to help.

Ask for Help

If you have 20 angel investors on your cap table, you have 20 people invested in your success. You have 20 people who know the industry, know marketing, know sales management, know finance, know supply chain, know regulatory processes, know HR. We’ve built software. We’ve run clinical trials. We’ve built factories. We know how to build startups and avoid the likely traps. We have connections. We have friends. And we want to help. For free.

Take advantage of this incredible network. And not just for intros to VCs and customers. We may not be able to fix every problem that crops up, but I’ll bet we know people who can.

So tell us about your challenges. We know you have them. You’re a tiny team trying to do a million things at the same time with little experience and minimal specialization. Ask for assistance on 3 key challenges every month. You’ll be surprised by the responses you’ll get.

Open Communications Pay Dividends

The worst thing a founder can do is put out regular announcements of the company’s successes, then run out of money and come back to investors for more.

Our reaction is: if everything was going so well, why are you in trouble now? The answer, of course, is the situation wasn’t nearly as rosy as you led us to believe.

The problem, though, is you have to convince us we’re not throwing good money after bad. That this one more dollop of cash will get you over the hump. In other words, you have to pitch us a rosy story of imminent success. But you’ve lost your credibility. If you didn’t tell us about all the problems until now, how can we believe there aren’t other problems you’re hiding?

Even if things are progressing reasonably well, you’ll probably still need early investors to sign off on legal changes. You may need to extend the maturity on a convertible note. Or later investors will demand changes to the board.

If we’re up-to-date on what’s going on, these sign offs take but a second. But when they come out of the blue after not hearing from the founders for months or even years, our reaction is to be suspicious. We’ll grill you on the details and some investors may refuse to sign. Getting the required signatures can turn a simple process into a massive headache.

Even worse, as you go out for your next funding round, it’s common for later investors to check in with early investors they know. The investment community is small and close knit.

“Great team, love their progress, been incredibly resilient getting through some difficult challenges,” is a response that will get a VC writing a check on the spot. “Those guys? I haven’t heard from them for years. Are they still alive?” will send the VCs scurrying away.

Just Do It

There’s plenty of reasons to keep your investors in the loop with regular updates.

And yet, perhaps only a quarter of the startups that I’ve invested in communicate regularly. The others we have to chase down yearly just to find out if the company is still alive.

Among angel investors, this is our biggest frustration. When we invest as a group, we ask for “information rights” requiring quarterly financial reports. And still we usually get nothing.

Yes, I know you’re busy. You’re building a product, chasing customers, and trying to line up the next round of funding, all at the same time. Time is your most precious resource. Sending updates is yet another thing to add to the nearly infinite to-do list.

There’s also a strong temptation to hold off sending out the announcement until you can include the great news that’s imminent. It’s easier to bring up challenges when leading with a big win. But that’s a mistake. Because there will always be some great news just out of reach that gives you an excuse to put off what you need to do.

Instead, report monthly. Put the date on your calendar. Send out a short update. Keep us in the loop.

Think of us as your unpaid army. Keeping us informed may seem like one more time drain you can’t afford, but I guarantee it will pay huge dividends in finding customers, signing up investors, and overcoming challenges to reach the next round, and the next.