Standards for Investor Updates

by a searcher from New York University - Leonard N. Stern School of Business

1 month ago

Hi all,
My partner and I are raising capital from high net worth investors for a self-funded search deal. We are drafting a preliminary term sheet to share with investors (along with the CIP) and want to know what is standard for sending investors updates on their investment.

Frequency: Should updates be quarterly, bi-annual, or annual?
Content: What is sufficient to include in an update and how long are typical updates?

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4 comments

searcher

I think most deals I've seen had quarterly financial updates, many also offer MD&A (management discussion and analysis of results). Some offer a formal quarterly call, most do not. I would include a financial summary, including revenue, EBITDA, and any other key metrics that you or your board evaluate as "critical" to the investment thesis. I would also provide any high level big developments: did you hire a new head of sales? Did you buy a new building? Did you launch a new product that you think will be 30% of sales in a year? On the MD&A, it's up to you. It could be a few sentences or it could be much more if you think that's critical. Generally your investors won't care and don't need to know the minutia, so shorter and higher level is sufficient.

I also think once a year it makes sense to give a 12 month forecast to your investors. You should be developing these with your board/advisors anyways, but by sharing it you are giving investors expectations to measure the company's annual performance against rather than just the 5-7 year model from the initial marketing.

3 weeks ago | like reply | 0 likes

searcher from University of Washington

Having worked at startups with investors, it depends on check size and the type of investors that they are.

If they're truly limited investors, then it may be as simple as a quarterly reporting update. If they're operators, then it may be monthly.

Content: start with less and iterate. At the very least, they'll likely want:

1/ financial performance versus expectations for P&L, BS, CF
2/ key metrics that cover sales and operational efficiency
3/ important risks and opportunities that you're working through

Thinking about the reporting cadence you'll have with investors will help you also decide on what types of investors you want. Some will roll their sleeves up and help; some will tap you into their networks; some will tell you to figure it out.

3 weeks ago | like reply | 0 likes

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