We won’t sugarcoat it: having to report on a monthly and quarterly basis isn’t really what you signed up for when you decided to take the plunge and follow your entrepreneurial ambitions. But that doesn’t mean you shouldn’t care.
Creating sustainable companies
From the moment an entrepreneur receives his/her first penny of investment, he or she is obliged to report. Among other reasons, these reports will let the investor know how the company is doing, and how their money is being used. And although this might sound rather straightforward, many companies still fail to recognise the true importance of diligent and on-time reporting. Because at the end of the ride, those who care - win.
At our fund, we really (like really) like to fund sustainable companies. This goes hand-in-hand with abiding to the ESG-standards (That’s Environment, Social, Governance). ESG is much more than taking care of the environment, as it also accounts for things like diversity, customer engagement, mitigating security risks and transparent reporting.
Besides the fact that you should inform your investors about any developments - both the highs and the lows - diligent and transparent reporting is also a great way to de-risk your company. Informing all stakeholders about your doings means that you give investors a heads up of what to expect, eliminating the possibility of any negative backlashes or “I wish I had known” scenarios. Although recent examples like the Wirecard fiasco or the toxic environment at Away might seem like extreme cases, they are effectively an offspring of poor and untransparent reporting.
At the altar
Startups, especially those in earlier phases, are extremely vulnerable for media backlashes, given their relatively small size and high growth characteristics - so both founders and their investors should keep each other informed. In the end, the relationship between a founder and its investor is much like a marriage. Both parties have vested interests, and both parties can sometimes jostle for control or spar for a say at the table. Fact of the matter is that both sides have committed to a serious relationship, which requires dedicated attention and frequent touchpoints.
From the founders perspective, it is exceptionally useful to train yourself to report diligently and on-time. There is a big chance that many of your stakeholders will not reply to your monthly/quarterly reports, but that does not mean that they won’t read it. Many investors consider not receiving an update as a huge red flag, and founders should therefore always inform their investors whenever they can’t report on time
“Investors love reports.” I guess Angelspan summed it up rather nicely.
The process of reporting could be a real pain in the ass for founders if they don’t have a handy toolkit or formal process to do it. We at Dutch Founders ask them to fill in our form which we have made ourselves: takes 10 minutes and stripped from all the mumbo jumbo.
So what should it include and how often should you report?
It can obviously vary from fund to fund, but we measure our portfolio companies on two pillars: financial and ESG. For the financial metrics, we picked those who we deem the most important:
In order to keep track of the ESG-score, we account for gender (M/F/X) in the total workforce. We make an active effort to diversify the workforce, both at our portfolio companies and ourselves.
Curious to see what our reporting template looks like? Get a sneak peek here.
Stay tuned for the next part!