I often think about the dozens of early stage companies that I have worked with over the last several years. I think about their teams, I think about their business models, and I think about the success I hope to see them achieve. But more often than I’d like, I also think about what went wrong. In my opinion, one of the greatest factors contributing to a company’s demise has been the lack of a communications strategy by the CEO, specifically as it relates to nurturing long-term relationships with their investors and potential investors. While communication during the fundraising process is critical, it’s even more important in the post-fundraising stage of a company’s early life. Identifying goals and metrics and communicating updates against them on a regular basis creates a cadence that will undoubtedly help when you start to run out of money.
As a start, I would strongly encourage you to become disciplined in communicating with your investors (and board, if applicable) on a monthly basis. For companies that have an established business model and are beginning to scale, this could include financial statements against budget (income statement and balance sheet), updates on HR, updates on product development, number of months of cash in the bank at the current burn, and where your investors (and board, if applicable) can help if needed. For companies that are still working on product/market fit, all of these items listed above can be included in addition to the tests that are being conducted and the results of such tests.
This approach will give your investors (and board, if applicable) confidence that you have your shit together as well as a better idea of your areas of focus and how you’re allocating the capital that you’ve raised. And this transparency should pay huge dividends when you look to raise more capital down the road.
Additionally, this approach will also hold you accountable to yourself. In your company’s early stages, most of you don’t have boards to hold you accountable. You’re all working your tails off; hours becoming days, days become weeks, then weeks become months, and suddenly you’ve lost complete track of time and can’t believe how much has happened. By taking a few hours a month to pull together these communications, you’re able to take a step back from the business and assess it from a different perspective. In the end, you may find yourself looking at the business in a completely different way.
This process will also help you communicate more effectively with your co-founders and employees. You will be able to reuse much of what you pull together to provide better insight to your employees on the company’s progress. They will see more of the bigger picture, which should give them more confidence in you and more attachment to the company.
Finally, if executed well, you will have documented the progress you’ve made over a 12-18 month period of time, and this information will be very helpful when raising your Series A (or Seed Extension).
If you aren’t doing this now, it’s not too late…but it will be too late if you start when you’re running out of cash. I’ve seen the latter too many times.
– Steve Farsht, Director of Techstars Chicago