Send the Update!
Updates are a powerful tool to get support and show investors your ability to communicate. We include a few tips to make sure they actually get read.
Greetings! With daylight saving time starting this weekend and signs of tulips, it’s starting to feel a lot like spring.
💭 Thought Bubble: Send the Update!
Over the last several months, I’ve talked to dozens of companies that are interesting but for various reasons just too early for SpringTime. I always ask to be added to any investor updates but am always shocked how few founders actually send them.
As discussed in episode 174, recency bias is real, especially for investors who see and talk to dozens of companies weekly. Updates help founders and their businesses stay top of mind, while increasing the chances of serendipitous intros. In episode 174, an update from a founder prompted Rich to connect the dots and introduce the founder to an investor he thought would be a great fit. Without the founder sending an update, it’s unlikely that connection would have happened.
Beyond staying top of mind, routinely sending updates shows investors you can communicate, a highly valued trait in founders. Early-stage investors know things don’t usually go as planned. That doesn’t bother them. Not communicating or waiting too long to communicate about the twists and turns does.
As episode 174 points out, the thoroughness of an update is less important than consistency, but there are some basic tenets to crafting a great update:
The very first item should be a one-liner on what your company does. As we’ve already mentioned, investors meet with hundreds of companies a year, and no matter how much they want to, it’s impossible for them to remember what each one does. Help orient your readers by providing some quick context.
In addition to what your company does, it can be helpful to outline your north star and/or key metrics. This not only starts establishing a trend line but also shows investors you understand what is critical for the business.
Include an “ask” section. You never know who is reading your updates and who might be able to help with a very niche or specific request. Increase the odds of serendipity by outlining where you could use support.
Keep it succinct. There will be times when you should write extensive briefs to your current investors, but for more general updates to folks who haven’t invested, my recommendation is to keep it short and sweet. Unless it’s a portfolio company, seeing an update with a wall of text is overwhelming for an investor, and it’s unlikely they’re going to read through it all. Ideally, it should not take readers more than a couple of minutes to get the gist.
Consistently sending investor updates is crucial to staying relevant and building trust with investors. Keep them simple and focused to engage readers and hopefully get support along the way!
🙀 Uninvestable Cap Tables
In this article, TechCrunch discusses the implications of giving up too much equity too early. The TechCrunch reporter sent a cap table for a company that had given up about two-thirds of the business for $3.3M to investors and asked if they would invest. The resounding feedback was that this was a big red flag and put the company at serious risk of raising additional capital from them or any other investor. There are also some good pointers on potential solutions and how clean up can tactically work.
STV Take: There is nothing worse than getting excited about a founder and their business only to dig into the cap table to find the founding team is severely diluted. In a prior newsletter, we discussed how founders and investors are actually more aligned on valuation than most initially think. If a valuation is too high, one of the big concerns is that founders won’t be able to grow revenue quickly enough to attain a meaningfully higher valuation in the future (or worse, avoid a down round). On the flip side, a valuation that is too low dilutes the founders too much and creates concern for future investors that they don’t have adequate skin in the game. Remember, a sophisticated investor knows this, so keep that in mind as you negotiate valuation or valuation caps.
🔍 Tackling Product-market Fit: Tactics and Frameworks
Bessemer Ventures has a great article that incorporates both frameworks and advice from the founders of Box, Atlassian, and Shippo, along with Bessemer partners. Some of the strategies discussed include using smaller customers to prove scale and experimenting with low-ball pricing. Another issue discussed is the benefit of focusing and over-delivering in a narrow market versus spreading the team too thin trying to serve different customer profiles.
STV Take: The best part of this article is the diagram that Bessemer Partner Adam Fisher developed. It’s a great visualization of the potential pitfalls along the way to finding product-market fit. The detours—“Sexy Story”, “Revenue-centric”, and “Self-deception”—are ones we see all too frequently. The contrast between “Revenue-centric” and “Self-deception” highlights the balance founders have to strike between listening to customers (yes, you need to talk to them!) and not being so reactive to customers’ desires that you essentially become a consulting company.
💯 Elevate Your Startup’s Finances & Accounting
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STV Take: Outsourcing your finance function is a no-brainer for startups. We’ve known AVL Growth Partners for over a decade and they have a stellar reputation.
🦄 Early-stage Advice from Unicorn Founders
Outlander rounded up advice from six unicorn founders on navigating the early part of their journey. The article is definitely worth a read and extrapolates on four main takeaways:
“Conviction is the foundation of startup success.”
“Build a complementary, mission-driven team”.
“Storytelling is an early-stage founder’s most valuable tool.”
“Prioritize everything against your North Star Metric.”
STV Take: Items on this list probably look familiar because these points are ones investors also spend a lot of time talking about. While all these points resonate, three hits especially close to home. Storytelling is so important for founders, especially the CEO, because the primary job of a startup CEO is to sell and storytelling is an integral part of being able to do that well.
😴 Decompression Zone
While I am normally not a fan of corny inspirational quotes, this image shared recently in The Modeller's Miscellany newsletter stopped me mid-scroll.