Open communication is an important part of any investor management strategy. Investor reporting is a key component of that along with annual reports and annual meetings.
Investor reports are portfolio updates prepared by fund managers. They share important information about recent wins, the state of finances and the portfolio, and other relevant insights. Fund managers typically distribute these reports through email and include bullet-point summaries or graphs illustrating important performance metrics. They’re meant to give investors a high-level view of what’s going on at the firm over time.
Done right, investor reporting can help you build a relationship with your investors that grows over time. In this post, we’ll review the benefits of creating summary investor reports, what to include in them, and how to share them securely.
Why investor reporting is crucial for growing your fund
Investor reporting is critical for fund managers looking to build long-term relationships with limited partners (LPs). Not only does it help you build and nurture investor relationships, but it can also help secure future funding, soften the blow of bad news, and inspire investor confidence.
Insights inspire investor confidence
Investors want to know what you’re doing with their money. If they’re left in the dark, they may begin to question their investments, and worse, your leadership at the firm. In fact, 83% of investors believe that companies that communicate effectively also perform better, and 77% are more likely to offer help to those that communicate.
When your investors are confident in you and their portfolio performance, they’re more likely to feel optimistic about the future and are more willing to invest. According to State Street’s Investor Confidence Index, “When confidence increases…investors want to…invest at prevailing prices. When confidence decreases, spending and risk-taking tend to fall. Investors are said to be confident when the news about the future is good.”
As a fund manager, you are always looking toward that next round of fundraising. Cultivating trust with your investors is a key part of securing their future investments, and shoring up the possibility they will bring in other potential investors.
Regular reports create positive investor-firm relationships
Updating investors regularly establishes and nurtures mutually beneficial relationships for you and your investors. You build trust and generate excitement when you keep investors in the loop.
Take an extra step and personalize your investor reports rather than sending a blanket Bcc version to all of your investors. Address them directly and provide information that specifically pertains to their investments or interests. This will make them feel special and encourage them to become involved with your firm when they see an opportunity that interests them. Send your personalized reports via a secure link so you can track whether they’ve opened and read the update.
Timely reports updates ease the blow of bad news
Investor reports aren’t always going to be filled with good news — there are times when you have to share bad news with investors as well. When you regularly share updates, bad news is easier to swallow.
As Erik Berg, investment analyst at Rev1 Ventures, puts it: “Developing a regular cadence with your updates will take a lot of the punch out of anything that is less than perfect. An email received after not hearing from a founder for 6 months saying that a company missed one of their revenue milestones…seems like a catastrophe. An explanation of why a milestone target was missed and a request for help…received as part of a regular investor update is a Tuesday.”
Regular investor reporting also exposes investors to the growth you’ve experienced. So, when there’s a negative turn of events, they know it’s a rarity compared to all the positive reports you’ve sent. When they’ve seen plenty of good news in their inbox, investors won’t fixate as much on bad news.
Concise reports give investors the information they need
Investor reports should be easy to understand, focus on important information, and be easily accessible and shareable. Investors are busy, and they don’t have time to peruse a whole bunch of in-depth data. Aim for a page or two at most.
Sometimes investors need to distribute information to business partners and colleagues. Rather than re-creating the wheel, they can easily forward or take snapshots of your investor reports to share.
Concise reports also allow them to easily see growth over time. Because the updates are predictable, they can store, find, and access them more easily than if the updates were sent sporadically.
When to do investor reporting
Industry consensus is that, in addition to an expansive annual report, regular investor reports should be sent quarterly. This is typically enough to stay relevant, but not so frequent that you’re bombarding your investors’ inboxes. In between quarterly reports, you can keep in touch with more casual forms of communication like phone calls and face-to-face meetings. Whatever cadence you land on, stick to it.
“Take time to regularly sit down and write about what is going on in your portfolio companies and the markets you invest in,” writes VC Fred Wilson. “It provides insights, raises issues, and gets the entire investment team talking about things in a way that few other regular processes do.”
What to include in an investor report
Keep investor reports brief and focused on a few specific metrics, and include some anecdotal updates as well.
Generally speaking, your investor updates should hit on the following categories:
- Finance: Revenue, expenses, burn rate, etc. (Note: Investors spend the most time on the financials section.)
- Traction: Churn rate, CLV, customer acquisition, etc.
- Product: Partnerships, expansion plans, operations changes, etc.
- Business: People, marketing, operations, etc.
- Funding: New rounds, mergers, acquisitions, etc.
- Any noteworthy events: Anniversaries, new office openings, holidays, etc.
- Your ask: What you ultimately want from your investor
Warren Buffet’s shareholder letters for Berkshire Hathaway Inc. are a great example of an investor report:
When VC firm Index Ventures contributed to $92 million in funding for social platform Roblox, the firm published a blog post about it. This would be fitting news to include in the financials or noteworthy events section of an investor report.
How to create efficient investor reports
Investor updates might seem tedious, but it’s much more efficient with automation and templates. “Items noted should be whatever is top of mind,” Berg writes. “You don’t need to write a novel, just give your investors a sense of the momentum of the company and make any asks you need help with.”
You can start with a template to make it more efficient. Maintain a level of flexibility with your templates, so you can personalize or adapt them as needed.
Shoelace, a tech startup, doesn’t use a “strict template” for their investor updates — theirs is more of a guideline. Though it’s a different type of investor update, fund managers can take a similar approach with theirs.
Sticking to frequent, brief reports means you can spend less time putting them together. VC Pedro Sorrentino likes “data driven, short, but engaging” updates. He says it’s important to remember that many investors are spread across multiple firms and portfolios. They don’t need detailed reports on every single thing.
Here’s the format he recommends:
- Executive summary with one to two key metrics that stand out most (this should be two to three sentences)
- Asks for help
- Metrics and KPIs with visuals
- Highest high
- Lowest lows
- Access to the archive for previous investor reports
Move forward with investor reporting with DocSend
It’s important to ensure you’re securely sharing this information with investors. Securely sharing fund reports with DocSend will inspire investor confidence in your commitment to keeping proprietary information safe. You can share sensitive materials with investors and get real-time, actionable feedback on how they’re using your reports.