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A well-maintained cap table is one of the most critical tools for startup founders navigating the complex world of equity and ownership. As a startup grows, managing and understanding equity distribution becomes essential for making informed decisions, attracting investors, and maintaining transparency. A clear cap table can help founders visualize ownership, anticipate dilution, and ensure accurate fundraising. Whether you’re preparing for investment rounds, employee stock options, or future exits, having a reliable cap table is crucial for your startup’s financial health and long-term success. What Is a Cap Table (i.e., Capitalization Table)? A cap table, or capitalization table, is a detailed spreadsheet or document that outlines a startup's equity ownership. It provides a breakdown of all the company’s securities, including common and preferred shares, options, warrants, and convertible instruments. Each entry typically includes details such as the type of security, the number of shares issued, the names of shareholders or stakeholders, and their ownership percentage. Cap tables also help illustrate how ownership evolves over time, especially after significant events like fundraising rounds, employee stock option grants, or equity transfers. A comprehensive cap table allows founders, investors, and employees to understand who owns what portion of the company and how that ownership could be diluted in future scenarios. Related resource: Emerging Fund Managers You Want on Your Cap Table What Is the Difference Between a Cap Table and a Term Sheet? While both a cap table and a term sheet play crucial roles in a startup’s equity management and fundraising, they serve distinct functions and provide different types of information. Cap Table:A cap table is a current snapshot of a company’s ownership structure. It details all the securities issued, such as shares, options, warrants, and convertible notes, and specifies who owns them. The cap table evolves with each new investment, equity issuance, or employee stock grant. It helps founders and investors understand who owns what percentage of the company, track dilution, and plan for future fundraising. Term Sheet:A term sheet is a forward-looking proposal provided by an investor during a funding round. It outlines the terms and conditions of a potential investment, such as the amount of capital being invested, the company’s valuation, equity percentage, liquidation preferences, voting rights, and other key terms. A term sheet is non-binding (except for certain confidentiality or exclusivity clauses) and serves as the basis for negotiating and drafting the final investment agreement. In summary: The cap table is a snapshot of the company’s current equity structure. The term sheet sets the groundwork for future changes to the cap table based on agreed-upon investment terms. Both documents are critical during fundraising, but they address different aspects of the process- one tracks equity, and the other negotiates terms. Related resources: 6 Components of a VC Startup Term Sheet (Template Included) Navigating Your Series A Term Sheet Why Is a Cap Table Important for Startups? A cap table is essential for maintaining transparency, managing equity, and making informed business decisions as your startup scales. It provides a clear view of who owns what, how ownership changes over time, and the potential impact of future investments or stock option grants. For founders, a cap table helps protect against excessive dilution and ensures strategic equity allocation. It offers investors insight into the company’s ownership structure and potential risks. Without an accurate and up-to-date cap table, startups can face challenges during fundraising, audits, or key financial decisions, making it a foundational tool for growth and sustainability. Understanding the Ownership Breakdown of Founders, Investors, and Employees Founders must always be aware of what their cap table means for ownership of their company. Understanding ownership is critical as the company grows and develops. Cap tables tell investors who owns what part of a company. Current investors want to see who has control. They also want the ability to forecast potential payouts and dilution under specific scenarios based on the ownership split. The breakdown of ownership in a startup can affect the company's overall value for future fundraising rounds, as well as who needs to be at the table for certain critical company decisions. Related Resources: How to Fairly Split Startup Equity with Founders Understanding Contributed Equity: A Key to Startup Financing Monitoring Equity Value and Tracking Company Valuation Monitoring equity value and tracking company valuation are crucial for both employees and investors. An up-to-date cap table provides a transparent view of how much the company is worth and how each stakeholder’s equity is affected by funding rounds, option grants, or changes in ownership. A well-maintained cap table helps all stakeholders understand how ownership changes, ensuring alignment and confidence in the company’s growth trajectory. By consistently monitoring equity value, startups can facilitate fair and transparent equity management, essential for long-term success. For Employees: Employees who hold equity, such as stock options, need to understand the potential value of their shares. A detailed cap table helps them see how their ownership stake evolves over time, providing clarity on the potential value of their equity and how it may be diluted with new investments. This transparency can also increase motivation and align their interests with the company’s growth. For Investors: Investors rely on the cap table to evaluate their ownership percentage, potential returns, and dilution risk. By tracking the company’s valuation over time, investors can assess whether their investment is growing in value and determine how future funding rounds will impact their stake. Accurate valuation data also informs strategic decisions during follow-on investments or exit planning. Facilitating Fundraising Rounds with Transparency and Accuracy In addition to current investors utilizing a cap table for forecasting and dilution predictions for different investment outcomes, potential investors and future fundraising can also be affected by cap tables. By viewing a cap table, potential investors can evaluate how much control and leverage could be maintained during negotiations. Historical insight provided in a cap table can affect negotiating current valuation for new funding raises. Additionally, an existing shareholder can easily determine what percentage of the company to give to the new investors in exchange for the capital contributed. Preparing for Financial Audits and Regulatory Compliance Maintaining an accurate and up-to-date cap table is essential for startups to ensure compliance with legal and regulatory requirements. Regulatory authorities and auditors often require companies to present their cap tables annually, ensuring adherence to legal standards and facilitating processes such as capital rounds and ownership changes. A well-maintained cap table provides a transparent record of the company's equity structure, which is crucial for: Regulatory Filings: Accurate cap tables are necessary for filings with regulatory bodies, such as the Securities and Exchange Commission (SEC), to comply with securities laws and regulations. Tax Reporting: Proper documentation of equity ownership and transactions ensures compliance with tax obligations and helps avoid penalties and legal issues. Investor Relations: Transparency in equity distribution builds trust with investors, demonstrating responsible management and adherence to legal standards. Why Do Investors Want to See the Cap Table? Investors want to review a startup’s cap table because it offers a comprehensive snapshot of the company’s ownership structure. This transparency is crucial for assessing risk, understanding equity dynamics, and making informed investment decisions. A well-maintained cap table helps investors evaluate several key aspects: Equity Distribution: Investors can see how ownership is split between founders, employees, and previous investors. This helps them gauge how much control the founding team retains and identify any potential risks related to future decision-making authority. Dilution Risk: The cap table reveals how new investments might dilute existing ownership. Investors need to understand how their stake may change in future funding rounds and whether the current equity structure leaves room for sustainable growth. Investor Rights and Preferences: A detailed cap table shows who holds preferred shares, warrants, or convertible instruments. This helps investors understand potential liquidation preferences and voting rights, which can affect exit strategies and return on investment. Potential Red Flags: A cap table can highlight any irregularities, such as over-diluted founders or complicated equity structures that might hinder future fundraising. What Does a Cap Table Look Like? A cap table typically takes the form of a spreadsheet or specialized software-generated table that organizes the company's equity information clearly and structured. It generally includes stakeholders in rows and types of equity details in columns, making it easy to see who owns what and how much. For more complex startups, the cap table can include additional details like option pools, convertible notes, and transaction history. Key components of a cap table often include: Shareholder Names: Lists founders, employees, investors, and other stakeholders who hold equity in the company. Number of Shares: The total number of shares each stakeholder owns. Type of Security: Categories like common shares, preferred shares, stock options, warrants, or convertible instruments. Ownership Percentage: Each stakeholder's proportional ownership of the company based on their share count. Investment Date: The date each stakeholder acquired their shares or invested in the company. Valuation Details: Information on the price per share and company valuation at each investment round. Image source Does a Cap Table Show Debt? A cap table does not typically show debt. Rather, it is specifically designed to track a company's equity ownership structure, detailing shares, options, warrants, and other equity instruments. Its primary function is to outline who owns portions of the company and how ownership is distributed among stakeholders like founders, employees, and investors. However, while debt is not shown on a cap table, certain debt-related instruments might be included if they have the potential to convert into equity. For example: Convertible Notes: These are debt instruments that convert into equity at a later stage, often during a future funding round. Convertible notes are generally tracked on the cap table because they will eventually affect ownership percentages once converted. SAFEs (Simple Agreements for Future Equity): Similar to convertible notes, SAFEs are agreements where investors provide funding in exchange for the right to future equity, and they typically appear on the cap table before conversion. Traditional loans or other forms of debt (e.g., bank loans, lines of credit) are tracked separately in the company’s financial statements, such as balance sheets, rather than on the cap table. This separation helps maintain clarity between the company’s equity structure and its liabilities. Related resources: The Startup's Handbook to SAFE: Simplifying Future Equity Agreements SAFE Fundraising: When to Consider & Benefits Information to Include in a Cap Table There is no fixed format for a cap table, but a comprehensive cap table should include key components that provide a clear picture of the company's equity structure. These components ensure transparency for founders, investors, and employees, helping to avoid misunderstandings and potential errors during fundraising, audits, and strategic planning. Here are the essential elements to include: Shareholders and Stakeholders: A list of all individuals and entities that hold equity in the company, including founders, employees, angel investors, venture capital firms, and advisors. This helps identify who owns portions of the company and their respective roles. Equity Details: Information on the type of equity held, such as common shares, preferred shares, stock options, warrants, and restricted stock units (RSUs). Each entry should specify the number of shares issued and any associated terms. Valuation and Ownership: Details on the company's valuation at different stages (e.g., pre-money and post-money valuations) and the percentage of ownership each stakeholder holds. This helps illustrate how equity is distributed and how ownership changes with new investments. Option Pool: The number of shares allocated for current and future employees as part of an equity incentive plan. The option pool is important for understanding potential dilution and planning for new hires. Related resource: The Essential Guide to Option Pools: Definition, Purposes, and Benefits for Startups Convertible Instruments: Any convertible notes, SAFEs (Simple Agreements for Future Equity), or other instruments that may convert into equity in the future. These should include details such as the conversion terms, amounts, and potential dilution impact. Transaction History: A record of all equity-related transactions, including issuance dates, purchase prices, investment rounds, and transfers. This historical data is crucial for maintaining accuracy and demonstrating compliance during audits. Restrictions and Agreements: Information on any restrictions or agreements related to equity, such as vesting schedules, buyback rights, or shareholder agreements. This helps stakeholders understand the conditions attached to their equity and any limitations on transferring shares. How Do You Make a Cap Table? Cap tables can be created and managed in a variety of ways. Typically, it is common for new startup founders to build their initial cap table in a spreadsheet. However, as your startup grows and the valuation and stakeholders get more involved and complex, a simple cap table design in a program like Excel won’t work. Some companies will use tools like CapShare or Carta, to build and manage their cap tables. These tools are typically more dynamic and less manual than managing via Excel. They can be easier to utilize to share out and circulate with employees and investors. In other scenarios, it might make the most sense to outsource the production and management of a cap table. When founders choose to self-manage their own cap table, they are susceptible to risks. Some of these risks include miscalculating valuations, which can lead to giving up too much equity and over-diluting shares in new investment rounds. Additionally, there might be tax consequences or legal issues arising from the mismanagement of a cap table. By outsourcing the production and management of a cap table. Typically, this management is outsourced to a legal team to ensure accuracy and compliance. Outsourcing is more expensive than managing with a software but can be much less expensive at the cost of major mistakes or miscalculation of value. How to Use a Cap Table? When using a cap table, it’s important to understand the following formulas: Post-Money Valuation = Pre-Money Valuation + Total Investment Amount Price-Per-Share = Pre-Money Valuation / Pre-Money Shares Post-Money Shares = Post Money Valuation/ Price-Per-Share Investor Percent Ownership = Investor Shares / Post-Money Shares These formulas are essentially what will be laid out in a cap table so understanding them is crucial. These formulas can also be used to update the cap table as it grows more complex via different significant financial rounds. The more investment rounds or other significant financial changes on the table, the more complex the cap table gets. This breakdown essentially showcases the additional steps and participants who are stakeholders in the startup. Founders round – this is the simplest version of the cap table and will typically showcase the simple split of equity between the founders of the company. Seed round – this introduces investors to the table who now own a portion of the company along with the founders and have given cash to the startup altering the overall value. Options pool round – when options are provided for new employees, this changes the value and breakdown of the company as represented by the cap table. Overtime, as more employees are hired and more options are granted, the more complex the cap table gets. VC round(s) – With any additional funding rounds taken on by the startup, the valuation drastically changes as does the list of stakeholders on the cap table. All of these events or rounds are significant and will change the breakdown and complexity of the cap table. How Do You Keep a Cap Table Updated? With the array of cap table management tools on the market, updating and keeping tabs on your cap table is easier than ever before. Generally, founders need to stay on top of their cap table management. If you raise a new round, offer new employee grants, terminate an employee, etc., you need to make the changes as soon as possible to avoid future headaches. If you put off updating your cap table in real-time, it could end up being a costly mistake as you need a lawyer to update and correct the table. To make your life as easy as possible, we recommend using software to manage and update your cap table. There are countless options, but we recommend Pulley. You can learn more about cap table management (and Pulley) in our Founders Forward Podcast with Pulley CEO and Founder Yin Wu here. Cap Table Examples/Templates Instead of starting from scratch, many founders will use a template to build out a cap table. Check out these templates below: 1. S3 Ventures Template S3 Ventures offers a template in Excel that they recommend for their portfolio companies. 2. Eqvista Template Eqvista's template includes ownership structure and the capital committed. 3. Cap Board Template Cap Board's template is a basic cap table on Google Spreadsheet, with formulas included, that can be used for any early-stage startup. 4. CFI Template CFI’s has many free excel templates. The spreadsheet below contains two sections – valuation and ownership. All numbers in blue are hard-coded assumptions and all numbers in black are formulas. Manage Your Stakeholders Effectively with Visible Effectively managing your cap table is essential for maintaining transparency, building investor confidence, and making informed decisions. With Visible, you can streamline your stakeholder communication by centralizing key data, sharing investor updates, and tracking interactions- all in one platform. Visible makes it easy to keep investors informed and engaged while helping you stay organized and focused on growth. Ready to simplify stakeholder management? Give it a free try for 14 days here.

Every startup founder eventually faces the critical decision of how to fund their business. Once you’ve determined that raising capital is the right path, the next step is deciding which type of investor best fits your needs: venture capitalists or angel investors. Both offer unique advantages and challenges depending on your growth stage, funding goals, and long-term vision. Whether you're a first-time founder or new to fundraising, understanding the differences between these two funding sources is key to making an informed decision. In this guide, we’ll explore the distinctions between venture capital and angel investors and provide practical advice on when and how to approach each. What Are Venture Capitalists? Venture capitalists (VCs) are investors who provide funding to early-stage, high-potential startups in exchange for equity, or ownership shares, in the company. They typically operate through venture capital firms that pool money from various sources to create a managed fund. These sources include high-net-worth individuals, institutional investors, corporations, and other entities known as limited partners (LPs). LPs provide the capital but leave the investment decisions to the general partners (GPs), who are the venture capitalists managing the fund. LPs expect a return on their investment, while GPs use their expertise to identify and invest in startups that show the potential for rapid growth and high returns. How Venture Capital Works Venture capital funding follows a structured process, typically broken down into different stages, known as funding rounds. Startups generally progress from seed funding to Series A, B, C, and beyond, with each round representing increased capital raised and expectations for growth. In the early stages, startups may receive seed funding from venture capital firms to help develop their product and prove the concept. As the business gains traction, it moves into larger rounds, such as Series A, which is used to scale the company, grow its team, and expand into new markets. Later rounds, like Series B and C, focus on further growth and scaling, often leading to an eventual exit via an IPO or acquisition. Venture capitalists conduct due diligence before investing, analyzing the startup’s market opportunity, product potential, and founding team’s expertise. In exchange for their investment, VCs receive equity in the company and often take an active role in guiding its growth, such as by joining the board of directors. VCs expect startups to have high growth potential and scalability, with the ability to disrupt existing markets or create entirely new ones. In return, they seek significant returns on their investment, typically aiming for 10x or more. This expectation drives VCs to focus on companies that can scale quickly and potentially become “unicorns”—startups valued at over $1 billion. Related resource: What to Include in a Data Room for Investors: Essential Guide for Startups Advantages of Venture Capital Venture capital offers several advantages for startups looking to grow rapidly and achieve significant market impact: Access to large capital: One of the primary benefits of venture capital is the ability to raise substantial amounts of funding. This is especially valuable for startups in capital-intensive industries like technology, biotech, or hardware, where scaling requires significant resources. Strategic support: Beyond providing funding, VCs often offer strategic guidance and mentorship. With their deep industry knowledge and extensive networks, venture capitalists can help startups refine their business models, access key markets, and connect with potential partners, customers, or even future investors. Opportunities for rapid scaling: With large capital infusions, startups can accelerate their growth by hiring top talent, expanding into new markets, and investing in product development. Venture capital funding enables companies to pursue aggressive growth strategies that might otherwise be out of reach with smaller funding sources. Credibility and visibility: Securing venture capital from a well-known firm can serve as a strong endorsement for a startup, boosting its credibility with customers, potential employees, and future investors. Increased visibility can help open doors and attract additional opportunities. Disadvantages of Venture Capital While venture capital can offer substantial benefits, there are also significant downsides that founders should carefully consider: Dilution of ownership: In exchange for large sums of capital, VCs take equity in the company. As a result, founders often see their ownership stake reduced, especially after multiple funding rounds. This dilution can leave founders with a smaller percentage of the company over time, even if the valuation increases. Loss of control: Venture capitalists frequently require a seat on the board and may have a say in key decisions, such as company strategy, hiring, and exit planning. This can limit the founder’s autonomy and introduce differing priorities, especially if the VC’s goals do not fully align with the founder’s vision for the company. Pressure for quick exits: VCs typically seek a return on their investment within 5-10 years, often through an acquisition or IPO. This pressures startups to grow and scale rapidly, potentially leading to decisions focused on short-term gains rather than long-term stability. Founders may feel pushed toward an exit strategy earlier than they are comfortable with. High expectations: Because VCs are looking for significant returns, they expect startups to achieve rapid growth. This can lead to increased stress and pressure on founders to hit aggressive milestones, often at the cost of the company's culture or long-term sustainability. Related resource: Our Guide to Building a Seed Round Pitch Deck: Tips & Templates Key Differences Between Angel Investors and Venture Capital While both angel investors and venture capitalists provide funding to startups, they operate in distinct ways and cater to different stages of growth. Angel investors tend to invest earlier, often with a more personal and flexible approach, whereas venture capitalists come in during later stages, offering larger sums of capital and more structured involvement. Understanding these key differences is crucial for founders as they decide which type of funding is best suited for their startup’s needs, growth goals, and long-term vision. 1. Investment Stage Angel investors typically enter the picture at the earliest stages of a startup’s development. They often provide funding during the seed stage, when a company is just starting out and may not yet have a fully developed product, steady revenue, or proven market fit. Angels are often willing to take on higher risks and support startups in their infancy, helping founders turn ideas into viable businesses. On the other hand, venture capitalists usually invest during later stages of growth. Startups that seek VC funding have typically moved beyond the idea phase and are beginning to scale, with some level of market validation and revenue generation. VC funding often comes into play in Series A rounds and beyond, when larger sums of capital are required to fuel rapid expansion, hire additional talent, or enter new markets. 2. Investment Amount One of the most notable differences between angel investors and venture capitalists is the amount of money they typically invest. Angel investors usually provide smaller sums, often ranging from $25,000 to $100,000 per deal, though in some cases, they may invest up to $500,000. Their investments are generally sufficient for startups in the early stages, such as covering product development, initial hiring, or early marketing efforts. Venture capitalists, on the other hand, invest much larger amounts. For example, in a Series A round, VC firms may invest anywhere from $1 million to $10 million or more, depending on the company’s potential and the firm’s investment thesis. As a startup progresses to later rounds (Series B, C, etc.), the investment amounts can increase significantly, often reaching tens or even hundreds of millions. This capital is geared toward aggressive scaling, including market expansion, large-scale hiring, and product development. 3. Level of Involvement Angel investors often take a hands-on, personal approach to the startups they fund. Since many angels invest their own money, they tend to be more emotionally invested in the company's success. Angels frequently provide personalized mentorship and guidance, leveraging their experience to help founders navigate early challenges. In some cases, angel investors might even have direct relationships with the founders, allowing for a more informal, collaborative dynamic. This personal involvement can be highly beneficial for early-stage startups that need both financial support and hands-on advice. Venture capitalists, by contrast, tend to have a more structured and strategic role. While VCs may offer mentorship and strategic guidance, their involvement is often more formalized, especially in later stages. VCs usually sit on the board of directors and participate in high-level decision-making, helping shape the company’s long-term strategy, product direction, and scaling efforts. However, VCs are often less involved in day-to-day operations, leaving the founders and executive team to manage the company’s execution. 4. Risk Tolerance Angel investors tend to have a higher risk tolerance compared to venture capitalists. Since angels often invest in the earliest stages of a startup, they are accustomed to backing unproven business models, nascent products, and founders who may not have extensive experience. For angel investors, the potential for high returns justifies the risk, and they are often willing to take a chance on innovative ideas or disruptive technologies that might not yet have market validation. This willingness to take on higher risk makes angel investors particularly valuable for startups still in the idea or prototype phase. On the other hand, venture capitalists typically seek more proven business models. While VCs are still taking significant risks, they generally prefer startups that have already demonstrated product-market fit, some level of revenue, and the ability to scale. By the time a venture capital firm invests, the company’s risks are more related to execution and growth rather than proving the core viability of the business. VCs conduct extensive due diligence to mitigate these risks and look for startups with a clear path to substantial returns. 5. Decision-Making Process The decision-making process for angel investors is typically quicker and more informal than venture capitalists. Since angels often invest their own money, they can make independent decisions based on their judgment and intuition. This can result in faster funding decisions, especially if the angel investor has a personal connection with the founder or is passionate about the industry. Angel investors may rely less on extensive due diligence, instead placing greater trust in the founder's vision and potential. Venture capitalists, on the other hand, follow a more formal and rigorous decision-making process. Since VCs manage funds from limited partners, they must ensure each investment aligns with the fund’s strategy and risk tolerance. VCs typically conduct thorough due diligence, which involves analyzing the startup’s financials, market opportunity, product, and team. This process can take several weeks or months as VCs carefully vet the company to minimize risk. Additionally, decisions are often made by an investment committee, further adding to the complexity and formality of the process. 6. Exit Strategy The exit strategies of angel investors and venture capitalists differ significantly in terms of flexibility and expectations for returns. Angel investors generally have more flexible exit strategies because they are often motivated by factors beyond financial returns, such as a personal passion for the business or a desire to support entrepreneurs. Angels may be satisfied with smaller exits, such as when the company is acquired or returns a modest profit. They are often open to longer timelines and may not push for an aggressive exit, allowing the startup more room to grow at its own pace. Venture capitalists, however, typically have more specific and ambitious exit goals. Since VCs are responsible for delivering high returns to their limited partners, they often aim for significant exits through initial public offerings (IPOs) or large acquisitions. VCs usually operate on a timeline of 5-10 years to realize their returns, and they push for scaling and growth that align with these exit strategies. As a result, venture capital-backed companies are more likely to pursue aggressive growth plans to meet the high return expectations of their investors. When to Pitch Venture Capitalists When considering venture capital, it’s essential to understand the structure of a VC firm. Venture capital firms are typically divided into general partners (GPs), who manage the firm and make investment decisions, and limited partners (LPs), who provide the capital but don’t participate in the decision-making. Limited partners may include wealthy individuals, insurance companies, pension funds, and foundations. VCs are looking to invest in startups that have the potential to deliver outsized returns. They aim to secure a spot on the Power Law Curve, where a small percentage of companies generate most industry returns. For this reason, VCs are often searching for unicorns- startups with a valuation over $1 billion- that can provide exponential returns on investment. When pitching to VCs, it’s important to know what they are looking for: a strong combination of product, market, and team. Product: VCs want to see a product that stands out and has the potential to dominate its market. Your product should be a "need to have," not just a "nice to have." Market: A large market opportunity is crucial. The larger and less saturated the market, the better. However, being too early in an untapped market can also pose risks for VCs. Team: A talented and experienced founding team can be a key differentiator. VCs are more likely to take a risk on a startup led by seasoned industry veterans or entrepreneurs with a proven track record of success. If you’re confident in your product, the market you’re entering, and the team you’ve built, pitching to venture capitalists could be the right move for your startup. When to Pitch Angel Investors While VCs are looking for that perfect mix of Market, Product, and Team and always searching for the elusive unicorn to double or triple their money, Angels may be a better bet if you’re extremely small and looking to get started vs. scale rapidly. Typically, angels offer better terms for investment. Angels of course still look for returns. However, they may also invest because they are passionate about the space, and because it’s their money directly, are more open to investing in an idea that will potentially just make them their money back in order to help a new entrepreneur get off the ground. Funding rounds with angel investors are often called “friends and family” rounds because its much more common for individuals to invest in those they care about and believe in vs. the biggest and best ideas. Angel investors are better to pitch to when your company is extremely early stage. When starting the company look to close friends, family, and professionals that can make a small investment and when you’re ready to scale quickly and take more risk after you’ve proven your concept a bit more, turn to VCs. Recommended Reading: The Understandable Guide to Startup Funding Stages Manage Investor Relationships Effectively with Visible Choosing between angel investors and venture capitalists depends on your startup’s stage, funding needs, and long-term goals. Angels typically invest early and offer flexible terms, while VCs provide larger sums for rapid scaling but expect high returns and growth. Understanding the key differences—such as investment size, risk tolerance, and exit strategies—will help you make informed decisions about which type of funding best suits your business. As you prepare for your startup’s next steps, ensure you stay connected with potential investors using Visible. Find investors at the top of your funnel with our free investor database, Visible Connect Track your conversations and move them through your funnel with our Fundraising CRM Share your pitch deck and monthly updates with potential investors Organize and share your most vital fundraising documents with data rooms Manage your fundraise from start to finish with Visible. Give it a free try for 14 days here. Related Resource: Top 6 Angel Investors in Miami

Best-in-class founders use investor updates to help with hiring, fundraising, strategy, and more. To help understand what is included in their Updates, we took a look at our own data. The Most Common Content Blocks We recently launched Content Blocks for Updates. Content Blocks allow you to pick different text sections to build out an investor update template. The following have been the most commonly used Content Blocks: 81% of Updates include “Highlights” 47% of Updates include a “Team” section 42% of Updates include “Product Launches” 42% of Updates include a “KPIs” section 39% of Updates include a “Fundraising” section At the end of the day, sending investor updates on a regular basis is what matters most. Every business is different so be sure to use the content and data that is most relevant to your business. Send an Update with Visible Start crafting your investor update using content blocks below:

Understanding pro rata rights is essential for startup founders navigating the complex world of venture capital. These rights, often included in SAFE (Simple Agreement for Future Equity) agreements, allow investors to maintain their proportional ownership as the company raises more capital. Pro rata rights help prevent dilution of investor shares, ensuring their initial investment value is preserved. For founders, comprehending these rights is crucial as they influence funding strategies, investor relations, and equity distribution, ultimately impacting the company's growth and stability. What Are Pro Rata Rights? Pro rata rights are provisions that allow investors to purchase additional shares in a company during future funding rounds to maintain their proportional ownership. These rights are crucial in preventing dilution, which occurs when new shares are issued, reducing the percentage ownership of existing investors. By exercising pro rata rights, investors can avoid a decrease in their ownership stake due to subsequent investments by new or existing investors. For startup founders, understanding pro rata rights is essential as they play a significant role in attracting and retaining investors, ensuring fair equity distribution, and supporting the company's growth trajectory. Related resource: Pre-money vs Post-money: Essential Startup Knowledge How Do Pro Rata Rights Work? Pro rata rights are negotiated and agreed upon during the initial funding rounds of a startup. They grant investors the option—but not the obligation—to participate in future funding rounds by purchasing additional shares. This allows investors to maintain their initial ownership percentage as the company raises more capital. When a startup plans a new funding round, it notifies investors with pro rata rights about the opportunity to invest. These investors can then decide to buy enough new shares to keep their ownership stake proportional to their original investment. Pro rata rights are especially common in early-stage investments, providing a mechanism for investors to support the company's growth while protecting their equity stake. Shareholder Dilution Shareholder dilution occurs when a company issues new shares, reducing the ownership percentage of existing shareholders. Pro rata rights directly address this issue by giving investors the ability to buy additional shares and maintain their proportional ownership. Without these rights, existing investors would see their ownership diluted as new investors come on board and additional shares are issued. For founders, managing dilution is critical as it affects the company's equity structure and investor relations. Pro rata rights help ensure that early investors, who took on initial risks, are not disproportionately disadvantaged in future funding rounds. Pro Rata Rights Example Pro rata rights are generally calculated on a percentage basis (example below) but there are rare circumstances where they can be calculated on a dollar basis. Investor ABC invested $100,000 at a $1,000,000 valuation (with pro rata rights) into Startup XYZ and owns 10% of the company. Startup XYZ is raising a future round at $2,000,000 valuation. Because of dilution, Investor ABC will now own less than 10% of the company. If Investor ABC exercises their pro rata rights, they will have the option to buy enough shares to maintain 10% ownership in Startup XYZ. Related resource: Deal Flow: Understanding the Process in Venture Capital Legal and Financial Implications Understanding the legal and financial implications of pro rata rights is crucial for startup founders. These rights can significantly impact your company's equity structure and future funding strategies. Legal Aspects of Pro Rata Rights in Investment Agreements Pro rata rights are typically outlined in investment agreements during the early stages of fundraising. These agreements legally bind the startup to offer existing investors the option to purchase additional shares in subsequent funding rounds. It is essential for founders to clearly define the terms and conditions of pro rata rights in these agreements to avoid any future disputes. Consulting with a legal expert to draft and review these terms is a best practice to ensure that all parties understand their rights and obligations. Financial Implications for the Startup’s Equity and Capital Structure The exercise of pro rata rights impacts the startup's equity and capital structure. When investors exercise these rights, they inject additional capital into the company, which can be beneficial for funding growth and operations. However, allowing investors to maintain their ownership percentage can limit the availability of shares for new investors, potentially affecting the valuation and attractiveness of the startup to future investors. Founders must carefully balance the need for new capital with the rights of existing investors to maintain a healthy and appealing equity structure. Best Practices for Compliance and Transparency By following these best practices, founders can foster trust with their investors, ensure legal compliance, and maintain a balanced capital structure that supports the startup's growth. Clear Documentation: Ensure all terms related to pro rata rights are explicitly stated in investment agreements. Regular Communication: Keep investors informed about upcoming funding rounds and their pro rata rights well in advance. Legal Review: Periodically review investment agreements with legal counsel to ensure they comply with current laws and regulations. Equity Management: Use reliable equity management tools to track ownership stakes and the exercise of pro rata rights accurately. Related resource: Seed Funding for Startups: Our Complete Guide Alternatives to Pro Rata Rights While pro rata rights are a popular mechanism for protecting investors' ownership stakes in startups, there are several alternative strategies that founders can consider. These alternatives offer various benefits and protections for investors, and can sometimes be more appealing depending on the specific circumstances of the startup and its funding strategy. Here are some key alternatives to pro rata rights: 1. Pre-emption Rights Pre-emption rights provide investors with the first opportunity to purchase new shares before they are offered to other investors. This mechanism ensures that existing investors can maintain their ownership percentage in the company if they choose to invest additional capital. These rights are particularly valuable for early investors who have a vested interest in the company's growth and success. By exercising pre-emption rights, these investors can increase their stake and continue to play an influential role in the company's development. This not only secures their investment but also strengthens their commitment to the company's long-term vision. For founders, offering pre-emption rights can be an attractive proposition to early investors, as it demonstrates a commitment to protecting their interests and encouraging their ongoing participation. This can help build strong, supportive relationships with investors who are more likely to provide additional funding, guidance, and resources as the company grows. 2. Drag-Along and Tag-Along Rights Drag-along and tag-along rights are provisions that give investors the ability to sell their shares alongside existing investors during specific events, such as an acquisition or an initial public offering (IPO). Drag-Along Rights: These rights allow majority shareholders to compel minority shareholders to join in the sale of the company under the same terms and conditions. This ensures that the sale can proceed smoothly without minority shareholders blocking the transaction, which can be crucial for achieving favorable terms in a sale. Tag-Along Rights: These rights enable minority shareholders to join a sale initiated by majority shareholders. This means that if a significant shareholder sells their stake, minority shareholders can sell their shares on the same terms, ensuring they are not left behind in a potentially lucrative deal. Both drag-along and tag-along rights offer significant security and liquidity for investors. They protect minority investors by ensuring they can participate in major liquidity events, thereby aligning their interests with those of majority shareholders. This alignment can incentivize investors to remain committed to the company over the long term, as they have assurances that they will not be excluded from important financial opportunities. For founders, offering these rights can make the company more attractive to investors by providing clear exit strategies and promoting investor confidence in the company's governance and future prospects. 3. Participation Rights Participation rights are similar to pro rata rights but come with a key difference: they allow investors to invest a specific amount in future funding rounds, rather than an amount proportional to their current stake. This predetermined amount can be beneficial for both startups and investors in several ways. For startups, participation rights offer greater flexibility in managing their capital structure and equity distribution. By agreeing on a fixed investment amount in advance, founders can better plan for future funding needs and avoid unexpected dilution. This also simplifies the process of raising new capital, as the terms of additional investments are clearly defined from the outset. For investors, participation rights provide the opportunity to continue supporting the company without the need to maintain a proportional ownership percentage. This can be particularly appealing for investors who want to stay involved and benefit from the company's growth but may not have the resources or desire to increase their investment significantly in later rounds. Participation rights balance the interests of startups and investors, offering a structured yet flexible approach to future investments. They help ensure ongoing support and involvement from early investors while allowing the company to navigate its funding strategy more effectively. 4. Discounted Future Rounds Offering discounted future rounds is another strategy startups can use to attract and retain investors. This approach involves providing investors with a discount on the share price in subsequent funding rounds, serving as an incentive for them to participate. For investors, discounted future rounds present an attractive opportunity to secure additional value from their investment. By purchasing shares at a reduced price, investors can potentially enhance their returns if the company continues to grow and increase in value. This incentive can be particularly appealing to those looking to maximize their investment gains and maintain their support for the company over the long term. For startups, offering discounted share prices in future rounds can be an effective way to secure necessary funding more easily. This approach can make the investment more appealing, especially in competitive markets where multiple startups are vying for capital. Additionally, by incentivizing existing investors to continue their support, startups can foster strong, ongoing relationships with their investor base, which can be beneficial for future fundraising efforts and overall growth. 5. Convertible Notes with Liquidation Preference Convertible notes with liquidation preference are an effective fundraising tool for startups, offering a blend of flexibility and investor protection. These financial instruments convert into equity based on specific terms during a future funding round or other triggering events, such as an acquisition. Convertible Notes: The primary advantage of convertible notes is that they allow startups to raise capital without setting an upfront valuation. This is particularly beneficial in the early stages when accurately valuing the company can be difficult. The notes typically convert into equity at a later date, often at a discount to the future share price or with a valuation cap, ensuring early investors receive favorable terms. Liquidation Preference: Adding a liquidation preference to convertible notes provides additional security for investors. In the event of an exit, such as a sale or liquidation of the company, investors with liquidation preference are prioritized for repayment before common shareholders. This helps protect their investment if the company's exit value is lower than expected or if the company faces financial challenges. Benefits for Startups: Fundraising Flexibility: Startups can secure needed funds quickly without the pressure of determining a valuation prematurely. This flexibility can be crucial in fast-paced or uncertain market conditions. Investor Attraction: The combination of potential equity upside and downside protection through liquidation preference makes these notes attractive to investors, increasing the likelihood of securing capital. Aligned Interests: Offering favorable conversion terms and repayment priorities helps align the interests of investors and startups, fostering strong and supportive investor relationships. 6. No Dilution Protection Some startups choose not to offer any dilution protection to their investors. This approach can streamline the negotiation process and expedite fundraising, as it removes the need to discuss and agree upon complex terms related to ownership percentage maintenance and future share purchases. Advantages for Startups: Speed and Simplicity: Without dilution protection, the fundraising process can be faster and less complicated. This simplicity can be beneficial for startups needing to secure capital quickly or wanting to avoid lengthy negotiations. Flexible Capital Structure: By not committing to dilution protection, startups maintain greater flexibility in managing their equity and capital structure. This can be advantageous when navigating multiple funding rounds and dealing with various investor demands. Disadvantages for Investors: Less Attractive in Competitive Markets: In markets where startups are vying for investor attention, the lack of dilution protection can be a significant drawback. Investors may prefer opportunities that offer safeguards for their investment, such as pro rata rights or other dilution protections. Increased Risk: Investors without dilution protection face the risk of their ownership percentage being significantly reduced in future funding rounds. This potential dilution can diminish their influence and the value of their investment, making the opportunity less appealing. For founders, the decision to forego dilution protection should be weighed carefully. While it can simplify and accelerate the fundraising process, it may also limit the pool of interested investors, particularly those seeking more security for their investment. Balancing the need for speed and simplicity with investor expectations and competitive market conditions is crucial for successful fundraising and long-term growth. Why Are Pro Rata Rights Important to Investors? Pro rata rights are often seen as a main advantage for early-stage venture firms and investors. The ability to follow on and maintain their ownership percentage is vital to the firm’s ability to make an exponential return on their investment. Investors often have different views about extending their pro rata rights. For example, Point Nine Capital guarantees they’ll invest in any of their portfolio companies’ Series A round. As Christoph Janz, Managing Partner at Point Nine, explains: In ~ 80–90% of cases, we want to do our pro-rata anyway. In ~ 5-10% of cases, we don’t want to but kind of have to, to prevent harm from the portfolio company due to bad signaling. Committing to our pro-rata in the remaining ~ 10% might lead to some sub-optimal capital allocation, but this will be far offset by all the other advantages. On the flip side, angel investors or smaller firms may not have the capital to continue to invest and choose to waive their rights. However, firms like Point Nine may not have the option to continue to invest, even if they would like to. According to Fred Wilson, Founder of Union Square Ventures, “In the last ten or so years, companies, lawyers, boards, management teams, founders, and in particular late-stage investors have been disrespecting the pro rata right by asking early-stage VCs to cut back or waive their pro rata rights in later stage financings.” When a company sets out to raise a later round, the company is likely doing well, so allocations get tighter. The only way for these later firms to get their desired piece of the pie is to ask early-stage investors to hold back from investing. Understandably, this can be a major point of disappointment and frustration for early-stage firms, as they’ve taken the risk of investing early, which helped make it possible for the company to grow. Ultimately, a pro rata right is a legal obligation and is seen as an agreement a founder is expected to live up to. When Would an Investor Waive Their Pro Rata Rights? As mentioned earlier, there are instances where an investor might waive pro rata rights: Lack of Capital: If raising at a later stage or high valuation, some early-stage investors with pro rata rights simply might not have enough capital to invest. Poor Data: If an investor does not believe in the company or its investment ability, they might pass. Against Thesis: Sometimes a fund has an investment thesis that might keep capital or ownership constrained, so they might waive their rights. Build Meaningful Relationships with Your Investors Founders can leverage monthly investor updates to tap into their investor’s network, capital, and experience to move their business forward. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Understandably, pro rata can be a tough conversation for both founders and VCs. On one hand, a pro rata right is a legal contract and something investors should expect to be honored when the time comes. While on the other hand, founders are getting pulled in every direction and are obliged to make the right decision for their company. As Mark Suster puts it, “Make sure you have an open conversation with your early investors about their interest in participating in subsequent rounds as those fundraisings become imminent and that might range from ‘Are you willing to show some support in the next round, which might be important to incoming investors?’ to, ‘Are you willing to step back a small amount from pro rata to make room for new investors if need be?’ Knowing how your investors are thinking is critical as is open communication.” The simplest way to keep all parties happy? Form a relationship and have the difficult conversations before you’re put in a tough spot under the wire. Founders, don’t be afraid to have open and difficult conversations with your investors. They are invested in what is best for your company as well. If investors are not aware of a portfolio company raising funds and the potential for a new investor taking a larger percentage, there is clearly something broken in the communication process by both parties. A simple way to up your communication skills? A monthly investor update. Try Visible free for 14 days.

Venture Capital investors expect their portfolio company founders to be on top of their key financial metrics at all times. Why? Because it fosters confidence in investors when CEOs demonstrate they’re making data-informed decisions about the way their company is operating. On the flip side, Venture Capital investors should be just as familiar with their own key performance indicators, aka fund metrics. A great way to impress Limited Partners is to demonstrate you have a deep understanding of both how fund metrics are calculated and why they matter to LPs. In this article, we define the key fund metrics every fund manager should always have at the ready, why they are important, how they are calculated, and why they matter to LPs. Related resource: Venture Capital Why Limited Partners (LPs) Need to Understand VC Fund Performance Understanding VC fund performance metrics is crucial for LPs because it goes beyond mere numbers—these metrics serve as vital indicators of a fund’s health, growth potential, and long-term value. By grasping these concepts, LPs can make more informed decisions, manage their portfolios effectively, ensure transparency, meet regulatory requirements, and plan for the future. Here's why these metrics are essential: Investment Decision-Making For LPs, investment decisions are about more than just selecting promising funds; they’re about strategically allocating capital to maximize returns and manage risk. By understanding key performance metrics, LPs can evaluate how well a fund is performing compared to others, identify trends, and make data-driven decisions on where to invest. Metrics like Internal Rate of Return (IRR) and Total Value to Paid-in-Capital (TVPI) help LPs assess the potential return and growth of their investments, ensuring that they are putting their money in the right places. Portfolio Management Effective portfolio management requires continuous monitoring and adjustment. LPs use performance metrics to track the progress of their investments and decide when to rebalance their portfolio. For instance, the Multiple on Invested Capital (MOIC) can help LPs determine the overall value generated by a fund, while the Residual Value to Paid-in-Capital (RVPI) provides insights into the unrealized potential of current investments. These metrics enable LPs to identify underperforming funds early and make necessary adjustments to optimize their portfolio’s performance. Related resource: Portfolio Management Reporting and Transparency Transparency is key in maintaining trust between fund managers and LPs. Regular and accurate reporting of performance metrics ensures that LPs are fully informed about the status of their investments. Metrics like Distributions to Paid-in-Capital (DPI) offer a clear view of the returns that have been realized, fostering confidence and trust. Transparent reporting also allows LPs to hold fund managers accountable, ensuring that their investment strategies align with the agreed-upon goals and timelines. Regulatory and Compliance Requirements VC funds operate under stringent regulatory frameworks that require meticulous reporting and compliance. Understanding and accurately calculating performance metrics help LPs ensure that their investments adhere to these regulations. For example, IRR calculations provide a comprehensive view of an investment’s performance over time, including the time value of money, which is often required in regulatory filings. Compliance with these standards not only mitigates legal risks but also enhances the credibility and reliability of the fund. Long-Term Planning Long-term financial planning is essential for LPs to meet their future capital needs and investment goals. By analyzing metrics like TVPI and IRR, LPs can project future returns and plan accordingly. These projections help in setting realistic expectations and strategies for reinvestment, cash flow management, and eventual exits. Understanding the long-term implications of their current investments enables LPs to build a robust and sustainable investment portfolio that can withstand market fluctuations and deliver consistent returns. Related resource: LP Reporting VC Performance Fund Metrics to Track Tracking the right performance metrics is essential for understanding the health and potential of a VC fund. These metrics offer insights into various aspects of fund performance, from immediate returns to long-term value. By knowing which metrics to track and when to use them, LPs and fund managers can make more informed decisions and better manage their investments. In this section, we’ll introduce the fundamental metrics used to evaluate VC fund performance: Multiple on Invested Capital (MOIC), Gross Total Value to Paid-in-Capital (TVPI), Residual Value to Paid-in-Capital (RVPI), Distributions to Paid-in-Capital (DPI), and Internal Rate of Return (IRR). Each of these metrics serves a specific purpose and is relevant in different stages of the investment lifecycle. Related resource: Portfolio Support for VCs Multiple on Invested Capital (MOIC) Definition: MOIC is considered the most common fund metric and is used to determine the value of a fund relative to the cost of its investments. In other words, it measures the amount gained on investments. Anything above a 1.0x is considered profitable. MOIC can be an effective way for LPs to compare the performance of the Venture Capital funds they’ve invested in; however, because it includes both unrealized and realized value, it’s not a true indicator of fund performance. How It’s calculated: (Unrealized Value + Realized Value) / Total Invested into the Fund Why it matters to LPs: MOIC is a straightforward metric that measures how much value the fund as a whole is generating over time. Related resource: Multiple on Invested Capital (MOIC): What It Is and How to Calculate It Gross Total Value to Paid-in-Capital (TVPI) Definition: TVPI demonstrates the overall performance of the fund relative to the total amount of capital paid into the fund to date. A TVPI of 1.5x means for every $1 an LP invested, they’re projected to get $1.5 in value back as a return. How It’s calculated: (Total Distributions + Residual Value) / Paid-in-capital = TVPI OR DPI + RVPI = TVPI Why it matters to LPs: This is an important metric for LPs because it demonstrates how much money they’ve (individually) received back to date from the fund as well as how much they are predicted to receive (residual value) after all the all assets (companies) have been sold as it relates to their (individual) investment. LPs like to use TVPI because it’s straightforward to calculate and hard to manipulate. LPs will be ok with TVPI’s lower than 1 for the first few years but then will start expecting to see an TVPI of 1 or higher as your company’s hopefully get marked up in value and you start distributing fund back to LPs. Related Resource: TVPI for VC — definition and why it matters Residual Value per Paid-in-Capital (RVPI) Definition: RVPI is the ratio of the current value of all remaining investments (after the GPs have done their mark up and mark downs) within a fund compared to the total contributions of LP’s to date. It essentially tells LPs the value of companies that hasn’t been returned (yet!) compared to how much has been invested. How It’s calculated: Residual Value / Paid in Capital = RVPI Why it matters to LPs: LPs want to know the likely upside of investments that haven’t been realized yet. For this reason, LPs are likely comparing your RVPI against funds with the same vintage. Distributions per Paid-in-Capital (DPI) Definition: DPI is the ratio of money distributed (returned) to LP’s by the fund, relative to the amount of capital LP’s have given to the fund. How It’s Calculated: Distributions / Paid-in-capital = DPI Why it matters to LPs: LPs will be comparing your RVPI and DPI numbers to understand where your portfolio is at in terms of maturity. A high DPI means you’re portfolio is more mature because you’ve already been able to start making distributions back to your LPs as opposed to just have a high residual (potential payout) value. Internal Rate of Return (IRR) Definition: IRR is the second runner-up for the most common fund metric. IRR shows the annualized percent return that’s realized (or has the potential to be realized) over the life of an investment or fund. A high IRR means the investment is performing well (or is expected to perform well). If you’re a seed stage investor you should be targeting at least a 30% IRR according to Industry Ventures. How It’s Calculated: Because of the advanced nature of this formula it’s best to use an excel based calculator to calculate IRR or a platform like Visible.vc which automatically calculates IRR for you. Related Resource –> What is Internal Rate of Return (IRR) for VCs Why it matters to LPs: IRR gives LPs a way to measure the performance (or predicted performance) of their investments before other profitability metrics are available. This metric, unlike the others listed above, takes into account the time value of money, which gives LPs another perspective to evaluate your fund performance and compare it to other asset classes. Check out the week from Revere VC below to get a better understanding of when each fund metric is relevant. Venture fund metrics can get confusing. MOIC, TVPI, DPI, IRR … ???? Beyond formulas, we teach our analysts about when to use them ⬇️ Fund still deploying? MOIC. Investment window closed? TVPI. Fund starts harvesting? DPI. Historical performance when fund is complete? IRR. — Revere VC (@Revere_VC) February 17, 2023 Tracking and Visualizing Fund Metrics in Visible It’s important to make sure you understand not only how to calculate your key fund metrics but also why they matter to LPs; this way you can add an insightful narrative about your fund performance in your LP Updates. Visible equips investors with automatically calculated fund metrics and gives GPs the tools they need to visualize their fund data in flexible dashboards. Dashboards can be shared via email, link, and through your LP Updates. Visible supports the tracking and visualizing of all the key fund metrics including: MOIC TVPI RVPI DPI IRR and more. Visible lets investors track and visualize over 30+ investment metrics in custom dashboards. Over 400+ Venture Capital investors are using Visible to streamline their portfolio monitoring and reporting. Learn more.

Internal rate of return (IRR) for VCs is the expected annualized return a fund will generate based on a series of cash flows over the duration of the fund, which is typically ten years. Unlike fund metrics such as RVPI, TVPI, and DPI, which are based on multiples, IRR takes into account the time value of money. IRR can be used to measure both fund performance and the performance of an individual investment. Related Resource → VC Fund Metrics 101 What makes IRR hard to predict in a fund context is cash flows happen at irregular periods because capital calls are made by funds on an as-needed How Is IRR Used by LPs IRR is a critical metric for Limited Partners (LPs) in venture capital, helping them make informed investment decisions by benchmarking a fund’s performance against its peers. By considering the time since the initial cash outflow and comparing it against similar funds in the same asset class, LPs can assess the efficiency and profitability of their investments. IRR's significance lies in its ability to account for the time value of money, providing a more nuanced view of an investment's potential returns over time. This makes it an invaluable tool for evaluating both short-term and long-term fund performance. For example, an LP might use IRR data to compare the performance of different funds launched in the same year, helping to identify which fund managers consistently deliver higher returns. Cambridge Associates is a well-known resource that publishes quarterly benchmarks and statistics, compiling data from thousands of fund managers and their funds. These benchmarks allow LPs to compare their fund’s IRR against a broad spectrum of data, ensuring they have a comprehensive understanding of their fund's performance relative to the market. You can check out their reports here on the Cambridge Associates website. In practical terms, an LP might look at the IRR of a prospective fund to decide whether to commit capital, comparing it against the IRRs of existing funds in their portfolio and the broader market. For instance, if a new fund has an IRR significantly above the median benchmark provided by Cambridge Associates, it might be seen as a more attractive investment opportunity. How Is IRR Calculated for Venture Capital Funds? Wrapping your head around the IRR formula can quickly put your brain in a pretzel so it’s recommended to use Excel, Google Sheets, or a platform like Visible to calculate IRR. In the IRR equation below, we’re solving for the discount rate (or the expected compound annual rate of return) that makes the net present value of an investment zero. IRR is calculated by solving for the rate of return (“r”) of a series of cashflows (“C”) over a period of time (“n” to the total number of periods “N”): Accurate cash flow data is crucial in calculating IRR because even small errors can significantly affect the result. For venture capital funds, it’s essential to meticulously track all cash inflows and outflows. This includes capital calls, management fees, expenses, and distributions to LPs. Using platforms like Visible can streamline this process by providing tools to automate and track these cash flows accurately. Check out this article for an example calculation of IRR within the fund context. IRR vs. CAGR While IRR and CAGR (Compound Annual Growth Rate) are both metrics used to evaluate the performance of investments, they serve different purposes and are calculated differently. Understanding these differences is crucial for investors when analyzing investment returns. What is CAGR? CAGR stands for Compound Annual Growth Rate and measures the mean annual growth rate of an investment over a specified period longer than one year. It provides a smoothed annual rate of return, assuming that the investment grows at a consistent rate each year. CAGR is particularly useful for comparing the historical performance of investments over time, as it neutralizes the effects of volatility and provides a straightforward percentage growth rate. Key Differences Between IRR and CAGR: 1. Consideration of Cash Flows: CAGR assumes a single investment and does not account for intermediate cash flows. It provides a geometric mean return over the period. IRR, on the other hand, takes into account the timing and magnitude of all cash flows, including intermediate inflows and outflows, providing a more detailed picture of the investment's performance. 2. Calculation Complexity: CAGR is simpler to calculate as it only requires the beginning value, ending value, and the number of periods. IRR is more complex, involving iterative calculations to find the rate that sets the NPV of all cash flows to zero. 3. Reinvestment Assumption: CAGR does not make any assumptions about reinvestment rates. It purely reflects the compounded annual growth rate. IRR assumes that interim cash flows are reinvested at the same rate as the IRR, which can sometimes be unrealistic. 4. Application Context: CAGR is often used to compare the performance of investments, funds, or portfolios over time, providing a clear picture of historical growth. IRR is widely used in capital budgeting and private equity/venture capital to evaluate the profitability of individual projects or investments, considering the specific timing of cash flows. IRR vs. ROI While IRR and ROI (Return on Investment) are both crucial metrics for evaluating the performance of investments, they serve distinct purposes and are calculated differently. Understanding these differences is key for investors when analyzing their investments. What is ROI? ROI stands for Return on Investment and measures the gain or loss generated on an investment relative to its initial cost. It is a straightforward metric that indicates the efficiency and profitability of an investment. Key Differences Between IRR and ROI: 1. Consideration of Time: ROI does not account for the time value of money. It provides a snapshot of profitability without considering how long the investment was held. IRR incorporates the time value of money, giving a more accurate reflection of an investment's performance over time by considering the timing of cash flows. 2. Calculation Complexity: ROI is easy to calculate and understand, making it a popular choice for quick assessments of investment performance. IRR is more complex, requiring iterative calculations to find the rate that sets the net present value of all cash flows to zero. 3. Reinvestment Assumptions: ROI does not make any assumptions about reinvestment of returns. IRR assumes that interim cash flows are reinvested at the same rate as the IRR, which can sometimes be unrealistic. 4. Application Context: ROI is often used for short-term investments and simple comparisons. It is particularly useful for evaluating the overall profitability of different investments without delving into the timing of returns. IRR is widely used in capital budgeting and private equity/venture capital to evaluate the profitability of projects or investments with multiple cash flows over time. Defining VC Fund Cash Flows Understanding the cash flows of a VC fund is crucial for accurately calculating metrics like IRR. The timing and magnitude of these cash flows significantly impact the fund's overall performance. Let’s delve into the types of cash flows in VC funds, their timing, and their implications for IRR. Cash Outflow Examples Capital Calls: These are requests by the VC fund to its LPs to provide a portion of the committed capital for specific investments. For example, if a fund decides to invest $1 million in a startup, it might issue a capital call for $1 million from its LPs. The timing of these calls is crucial; delaying capital calls can enhance IRR by reducing the time period over which the capital is invested. Management Fees: Typically, VC funds charge annual management fees, often around 2% of the committed capital. For instance, a $100 million fund might charge $2 million annually to cover salaries, operational costs, and other expenses. These fees reduce the net returns to LPs, impacting the net IRR​​​​. Fund Expenses: These include legal fees, administrative costs, and technology expenses. For example, a fund might incur $100,000 annually in legal and administrative fees, which also affect net returns. These expenses are necessary for the day-to-day operations of the fund but reduce the overall returns available to LPs. Cash Inflows Examples Distributions: These are returns to LPs from the fund's investments, usually following a liquidity event such as an acquisition, merger, or IPO. For example, if a portfolio company is acquired for $10 million, the proceeds distributed to LPs constitute a cash inflow. Early and large distributions can significantly boost IRR. Dividends and Interest: Occasionally, portfolio companies might pay dividends or interest on convertible notes. For example, a company might distribute $50,000 in dividends annually to the VC fund, contributing to cash inflows. These payments can provide a steady stream of returns, enhancing the IRR by providing earlier cash flows. Impact of Timing on Cash Flows: The timing of cash flows is critical in calculating IRR. Here’s why: Early Distributions: Receiving returns early in the fund's life can significantly enhance IRR because it reduces the period over which the capital is at risk and increases the annualized return. For instance, an early exit that returns capital within the first three years can result in a much higher IRR compared to a similar exit occurring in year seven. Delayed Capital Calls: By calling capital only when necessary, funds can avoid having large sums of uninvested capital, which would otherwise result in a lower IRR due to what is known as "cash drag." For example, if a fund delays a $1 million capital call by two years, it improves IRR by reducing the period the capital is deployed. Lumpy Cash Flows: Venture capital investments often result in irregular, or lumpy, cash flows. Large inflows from a significant exit can cause IRR to spike, while periods with no inflows might show a temporary decline in IRR. Managing these irregularities is a key challenge for fund managers. Examples and Implications for IRR: Example 1: A VC fund invests $2 million in a startup and exits three years later with a $10 million return. The IRR calculation will consider the initial $2 million outflow and the $10 million inflow three years later, likely resulting in a high IRR due to the substantial gain over a relatively short period. Example 2: Another fund might make smaller, incremental investments over time, leading to multiple capital calls and varied exit timings. If these exits are delayed, the IRR might be lower compared to a fund with early, significant exits. Want to learn more about tracking key fund metrics in Visible? Gross vs Net IRR When evaluating a venture capital fund's performance, it's essential to understand the difference between Gross IRR and Net IRR. Both metrics provide insights into the fund's returns, but they account for different factors and expenses, offering distinct perspectives on performance. Gross IRR: Gross IRR represents the annualized rate of return on an investment before deducting any fees or expenses. This metric focuses solely on the performance of the fund's investments, providing a measure of the raw investment skill of the fund managers. For example, if a fund invests $1 million and it grows to $2 million over three years, the Gross IRR calculation would not consider management fees, carried interest, or any other expenses incurred by the fund. This gives an unfiltered view of the investment returns generated by the fund's portfolio. Net IRR: Net IRR, on the other hand, accounts for the deductions of all management fees, fund expenses, and carried interest. This metric reflects the actual return the LPs receive after all fund management costs are considered. For instance, if the same $1 million investment grows to $2 million but incurs $200,000 in management fees and $100,000 in carried interest, the Net IRR would be lower than the Gross IRR. This adjusted figure provides a more accurate reflection of the returns that LPs can expect to receive. Key Differences and Implications: 1. Fee Consideration: Gross IRR does not include management fees, fund expenses, or carried interest. Net IRR includes these fees, providing a realistic view of the returns to LPs. 2. Performance Benchmarking: Gross IRR can be useful for comparing the investment performance across different funds without the influence of varying fee structures. Net IRR is crucial for LPs as it reflects the actual profitability of their investment after all costs are accounted for. 3. Decision Making: Gross IRR helps in assessing the raw investment skills of fund managers. Net IRR aids LPs in making informed decisions about where to allocate their capital based on the net returns they can expect to receive. By understanding Gross and Net IRR, investors can gain a comprehensive view of a fund's performance, ensuring they make well-informed investment decisions. Unrealized vs. Realized IRR When analyzing a venture capital fund's performance, it is crucial to distinguish between Unrealized IRR and Realized IRR. These metrics reflect different stages of the investment process and provide insights into both current valuations and actual returns. Unrealized IRR: Unrealized IRR includes both actual profits and theoretical gains based on the current valuations of the portfolio companies that have not yet been liquidated. This metric is forward-looking and speculative, as it assumes that the current valuations of the investments will be realized upon exit. For example, if a fund holds equity in a startup currently valued at $10 million but has not yet sold its stake, the unrealized gains contribute to the Unrealized IRR. This provides an optimistic view of the fund's potential returns but is subject to market fluctuations and the eventual success of the exits. Realized IRR: Realized IRR, on the other hand, only includes the actual cash flows that have been received from liquidated investments. This metric is based on historical data and provides a concrete measure of the returns that have been distributed to the LPs. For instance, if a fund invested $1 million in a company and later sold its stake for $5 million, the $4 million profit would be included in the Realized IRR. This figure gives a reliable measure of the fund's performance based on actual returns. Key Differences and Implications: 1. Valuation Basis: Unrealized IRR is based on current valuations and future projections. Realized IRR is based on actual, historical cash flows. 2. Reliability: Unrealized IRR can be speculative and subject to change based on market conditions and the success of future exits. Realized IRR provides a dependable measure of past performance. 3. Use Case: Unrealized IRR is useful for assessing the fund's potential future returns and the current value of its portfolio. Realized IRR is crucial for understanding the fund's actual profitability and historical performance. The IRR J-CURVE The IRR J-Curve describes the typical pattern of IRR over the lifespan of a venture capital fund. It illustrates how IRR typically decreases in the early years of a fund and then rises sharply in the later years as investments mature and exits occur. Understanding the J-Curve is essential for both fund managers and LPs as it has significant implications for investment strategy and expectations. Understanding the J-Curve: In the early stages of a venture capital fund, significant capital outflows occur as the fund invests in startups and incurs management fees and operational expenses. These outflows typically result in a negative IRR during the initial years, which is often called the "valley of death" in the J-Curve. As time progresses, some portfolio companies start to mature and achieve liquidity events such as acquisitions, mergers, or IPOs. These events generate cash inflows, which are distributed back to the LPs, causing the IRR to rise. Eventually, the IRR may surpass the initial negative values and reach a positive and often substantial rate of return as more successful exits occur. Implications for Fund Managers and LPs: 1. Expectation Management: Fund Managers: Need to communicate the J-Curve effect to LPs, explaining that early negative returns are typical and part of the investment process. This helps manage expectations and reduce concerns during the initial years. LPs: Should understand that initial negative returns do not necessarily indicate poor fund performance. Instead, they reflect the natural investment cycle in venture capital. 2. Investment Strategy: Fund Managers: Should strategically plan capital calls and investments to optimize the timing and magnitude of cash inflows. Delaying capital calls until necessary can minimize early outflows and improve the overall IRR. LPs: Need to be patient and maintain a long-term perspective, recognizing that the most significant returns typically occur later in the fund's lifecycle. 3. Performance Evaluation: Fund Managers and LPs: Both parties should use the J-CCurve as a benchmark for evaluating fund performance. Comparing the fund's IRR progression to the expected J-Curve can provide insights into whether the fund is on track or if adjustments are needed. Example: Consider a venture capital fund with a 10-year lifecycle. In the first three years, the fund experiences negative IRR due to capital outflows for investments and fees. By year five, one of the portfolio companies is acquired, generating a significant cash inflow. This event causes the IRR to rise sharply, marking the beginning of the upward curve. By the end of the fund's lifecycle, several successful exits have occurred, resulting in a high positive IRR that exceeds the initial negative values. Related resource: J-Curve and IRR Putting IRR into Vintage Context When evaluating the performance of VC funds, it's essential to consider the vintage year—the year in which the fund began deploying capital. Comparing funds within the same vintage year allows for a fair assessment, as these funds are subject to similar market conditions and economic cycles. Understanding the vintage year context can significantly impact the interpretation of a fund's RR. Relevance of Comparing Funds within the Same Vintage Year: 1. Consistent Market Conditions: Funds of the same vintage year are exposed to the same macroeconomic environment, including interest rates, inflation, and market sentiment. These factors heavily influence investment opportunities and outcomes. 2. Economic Cycles and Performance: Economic cycles, including periods of expansion and recession, affect the availability of capital, the number of viable startups, and exit opportunities. Funds started in an economic downturn may acquire investments at lower valuations but might struggle with exits if the downturn persists. Conversely, funds launched during economic booms might invest at higher valuations but benefit from more lucrative exit opportunities as the economy continues to grow. Impact of Market Conditions and Economic Cycles Market conditions and economic cycles play a critical role in determining the performance of VC funds. Funds launched during bullish markets typically experience different growth trajectories compared to those started in bearish markets. Bullish Market Example: A fund started in 2010, a period of economic recovery and growth, may benefit from a favorable market environment, leading to higher valuations and more exit opportunities. This can result in higher IRRs compared to funds from other vintage years. According to Cambridge Associates, funds from the 2010 vintage year have shown robust performance due to strong market conditions and increased IPO activities​​. Bearish Market Example: In contrast, a fund launched in 2001 during the dot-com bust faced a challenging environment with limited exit opportunities and lower valuations. Such funds might initially show lower IRRs, reflecting the tough economic conditions during their early years. A study by Preqin indicates that vintage 2001 funds had lower early IRRs but showed significant improvement as the market recovered and exit opportunities increased​​. Examples Illustrating Vintage Year Impact on IRR: 1. Vintage Year 2008: Funds started in 2008 faced the immediate aftermath of the financial crisis. Initial IRRs were likely low due to the challenging investment climate. However, those funds that managed to survive and deploy capital strategically during the downturn might have seen substantial IRR increases as the economy recovered in the following years. As per a report from PitchBook, vintage 2008 funds showed a notable uptick in IRR after 2012, correlating with the broader economic recovery and increased M&A activities. 2. Vintage Year 2015: Funds launched in 2015 benefited from a prolonged period of economic growth and technological innovation. High valuations and active IPO markets provided numerous exit opportunities, resulting in strong IRRs. Cambridge Associates' benchmark data shows that vintage 2015 funds had higher median IRRs compared to previous years, driven by successful exits in sectors like technology and healthcare. By placing IRR in the context of vintage years, investors can better understand the performance of their VC investments relative to market conditions and economic cycles. This contextual understanding helps in making more informed decisions and setting realistic expectations for future fund performance. Considerations of IRR The IRR is a valuable metric for assessing the performance of VC investments. However, it has several limitations and should be used cautiously. Understanding these flaws and the contexts in which IRR may be inappropriate can help investors make more informed decisions. 1. Sensitivity to Cash Flow Timing: Explanation: IRR is highly sensitive to the timing of cash flows. Even small changes in the timing of cash inflows or outflows can lead to significant variations in the IRR calculation. Implication: This sensitivity can sometimes provide a misleading picture of an investment's performance, especially if the cash flows are irregular or unpredictable, which is common in venture capital investments. Example: If a fund delays a significant cash inflow by just a few months, the IRR can change dramatically, potentially misrepresenting the true performance of the investment​​ . 2. Reinvestment Assumptions: Explanation: IRR assumes that interim cash flows are reinvested at the same rate as the IRR itself. This assumption can be unrealistic, particularly in volatile markets where finding equally profitable reinvestment opportunities is challenging. Implication: This can lead to an overestimation of the investment’s performance if the actual reinvestment rate is lower than the calculated IRR. Example: If a fund generates an IRR of 20% but can only reinvest interim returns at a rate of 5%, the actual performance will be lower than the IRR suggests . 3. Multiple IRRs: Explanation: In cases where an investment has alternating positive and negative cash flows, there can be multiple IRRs that satisfy the NPV equation. This can create confusion and ambiguity. Implication: Multiple IRRs make it difficult to determine the actual rate of return, complicating the decision-making process. Example: A project with cash flows that include significant inflows followed by large outflows might yield more than one IRR, making it unclear which rate accurately represents the investment's performance . 4. Lack of Scale Sensitivity: Explanation: IRR does not account for the scale of the investment. A small project with a high IRR might be less attractive than a larger project with a slightly lower IRR if the latter generates significantly higher absolute returns. Implication: Investors might prioritize projects with high IRRs without considering the overall size and absolute returns of the investment, potentially missing out on more lucrative opportunities. Example: A $1 million investment yielding a 30% IRR might seem attractive, but a $10 million investment with a 20% IRR could provide substantially greater total returns​​ . 5. Inappropriate for Short-Term Investments: Explanation: IRR is less meaningful for short-term investments because it annualizes the return, which can exaggerate the performance of short-duration projects. Implication: Using IRR for short-term investments can give a skewed perception of performance, making short-term gains appear disproportionately attractive. Example: An investment with a 50% return over six months might show an extremely high annualized IRR, but this does not reflect sustainable long-term performance . Situations Where IRR is Not Appropriate: Projects with Non-Standard Cash Flows: When investments have non-standard or erratic cash flows, IRR may not provide a reliable measure of performance. Comparing Different Sized Investments: When comparing investments of significantly different sizes, IRR can be misleading as it does not reflect the absolute value of returns. Short-Term Investments: IRR can exaggerate the perceived performance for short-term projects, making it less useful for accurate comparison. Tracking IRR in Visible Visible lets you track and visualize over 35+ key fund metrics including IRR in one place. Get started with calculating your IRR by leveraging Visible's investment data features. Track the round details for your direct investments and follow on rounds. By utilizing Visible, investors can better understand their fund’s performance, streamline data management, and improve decision-making processes, ultimately driving better investment outcomes. Related resource: Investor Update Dashboard Market Penetration Strategy Important Venture Capital Metrics Important Startup Financials

Tear sheets are an important component of the venture capital industry. If you’re new to VC, it's crucial to understand what a tear sheet is and how to create a valuable and effective one for your fund. What is a Tear Sheet? A tear sheet is a single-page summary of an individual company. A tear sheet is a critical term to understand in the venture capital world. Beyond a simple understanding of what a tear sheet is, it’s important to learn how a tear sheet is best used and how to create one. The term “tear sheet” originated from pre-internet business when S&P would produce summary sheets for public companies on one page. All of these single-page summaries could be torn out of a larger book containing all of the summary sheets. This act of tearing out the relevant page stuck around. Even though the physical act of tearing a sheet is gone, the single-page summary, the tear sheet, has withstood the test of time and is an extremely important piece of collateral for anyone working in VC to understand. A tear sheet should contain overview information about a company. This should include the total investment amount, gains/losses, sector, and a summary of company performance. Essentially, anything that will allow the reader to get a quick snapshot of the business and give them an understanding of earning potential that is possible should be included on the tear sheet. The LPs (limited partners) or investors at a VC firm are a key audience that will be viewing the tear sheet. You want to make a good impression when presenting information to LPs. Therefore, when thinking about putting together tear sheets for your portfolio companies, it’s important to make them look professional and use them to effectively communicate concise updates about your companies. Well-put-together tear sheets can go a long way in impressing LPs. View Tear Sheet examples from Visible. Tear Sheet Templates When building out tear sheets for your portfolio companies, make sure to include both metrics and qualitative data about your companies. If you’re looking for a tear sheet template (read on to learn more about tear sheet templates in Visible!) make sure to find a template that includes both of these categories. Start with metrics, or quantitative data about the company. A few metrics to consider including*: Revenue – Revenue and revenue growth over time is an easy way to understand the health status of a company. While not an accurate portrayal of the company as a whole, it gives LPs a sense of the stage of the company. FTE Headcount & New Hires – This is typically considered non-sensitive data from portfolio companies but again gives LPs an idea of the stage of the company and how they’re growing over time. It also is an indicator of how a company is using their cash. True North KPIs – Depending on the type of company, this might differ. The true north KPIs in a tear sheet template should be the key performance indicators that are guiding the business every single day. Beyond revenue goals, examples of other KPIs could be active users, a customer net promoter score, active customers, or average contract value. *Note: It’s important to maintain privacy for portfolio companies and receive permission to share information with LPs. It’s also a best practice to share the same level of detail across all companies. Another important section to include on a tear sheet is an investment overview. Some items to include are: Total Invested – It’s helpful to remind LPs about the total invested in a company and how it compares to others in the portfolio. Date of Initial Investment – This gives a sense of how long it has been since the initial investment and gives context on when to expect a return. Investment Multiple – This provides LPs with an idea of the expected return in the future. Shifting from the metrics on your tear sheet template, consider the following qualitative points to include in your tear sheet: Company Tagline – This is an easy and concise way to orient or remind an LP about what the company does. Sector – This simple static property again helps provide context to LP’s who have invested in several funds. HQ Location – Helps everyone stay on top of where the portfolio is located. Narrative Update – This section is a commentary on recent highlights from the portfolio company. As always, it’s important not to disclose sensitive information about a portfolio company. Asks – Depending on your relationship with your companies and LPs, it may be appropriate to share ‘Asks’ from portfolio companies with LPs. For example: Company A is looking to hire a Head of Engineering based in Berlin and is seeking candidate referrals. Tear Sheet Examples A great place to start when creating your portfolio tear sheets and looking for tear sheet examples is to ask your network. Talk to experienced funds in your network. If they’ve raised several funds and have close relationships with their LPs, they probably have a great idea of what LPs like to see when receiving updates about portfolio companies. You can also check out Visible’s Tear Sheet Examples here. Using Visible for Portfolio Tear Sheets Visible is an incredibly useful tool for funds to report to the LPs on a consistent basis. You can take the quantitative data and qualitative information suggested above and turn it into a template right in Visible. Check out a tear sheet example in Visible below. How Visible Automatically Builds Tear Sheets Visible is the perfect tool to build tear sheets for all your companies in just a few clicks. Visible automatically builds tear sheets by: Equipping investors to automatically collect structured data from portfolio companies on a regular basis. As an investor, you can decide what data is most relevant to request from each company. Creating tear sheet templates that automatically pull in metric data, investment data, and qualitative properties that already exist within Visible. Interested in exploring how to build Tear Sheets in Visible?

Structured data. The holy grail of business intelligence. Structured data unlocks a realm of possibilities, from setting benchmarks to enhancing decision-making processes. Yet, in the venture capital landscape, accessing reliable, structured data remains a formidable challenge. This is precisely why we created the Visible AI Inbox. With unique features like automated metric detection and file parsing, the Visible AI Inbox stands out as a pioneering solution for portfolio monitoring. Discover how it can transform your data strategy by meeting with our team. Turning email into insights We believe that investors should spend time sourcing new deals and helping founders, not manually copying and pasting data from email 🙂. The AI Inbox helps aggregate insights that exist siloed in data, files, and updates across a venture firm. Updates from founders often stay stuck in one team member's inbox because it's too time-consuming to extract and enter the data and files into a more centralized repository. Visible AI Inbox makes this possible within seconds. Requests + AI Inbox = A Complete Picture The addition of the AI Inbox continues to advance our market-leading portfolio monitoring solution. The pairing of Requests + the AI Inbox will give investors a holistic view of portfolio company performance across a fund. Visible continues to be the most founder-friendly tool on the market. We’ll continue to build tools in existing workflows where both founders and investors live every day. How Does it Work? Visible AI Inbox works in three simple steps. Forward emails to a custom AI inbox email address Visible AI automatically maps data and files to portfolio companies Investors can review and approve content before it is saved From there, dashboards, tear sheets, and reports are all automatically updated on Visible. Learn more about how Visible AI Inbox can streamline workflows at your firm by meeting with our team. FAQ Will this be available on all plans? Visible AI Inbox is only available on certain plans. Get in touch with your dedicated Investor Success Manager if you want to explore adding this to your account. How is Visible addressing privacy and security with Visible AI Inbox? No data submitted through the OpenAI API is used to train OpenAI models or improve OpenAI’s service offering. Visible AI Inbox leverages OpenAI GPT 4 and proprietary prompts to extract data in a structured way and import it into Visible. If you’re uncomfortable with utilizing OpenAI to optimize your account, you can choose not to utilize this feature. Please feel free to reach out to our team with any further questions. These processes adhere to the guidelines outlined in Visible’s privacy policy and SOC 2 certification. Visible AI Inbox Best Practices We'll be sharing best practices for how investors are leveraging Visible AI Inbox in our bi-weekly newsletter, the Visible Edge. Stay in the loop with best practices and product updates by subscribing below:

What is an Investor Update? An investor update is a document that includes recent wins and losses, financials, team updates, customer wins, and core metrics. They are typically shared via email but can also be shared via PDF, deck, or link. For many startup founders, investor updates are shared every month but can also be shared on a quarterly (or more frequent) basis. Learn more about why and how to create investor updates for your business below: Why Send Investor Updates? Step into the shoes of your investors and it will help understand the importance of investor updates. Put simply, an investor’s (venture capitalist) job is to deploy limited partners’ capital by investing in startups, generate excess returns, and pay back their limited partners with the hopes of doing it again. This means that an investor’s success hinges on the success of their portfolio company. Put simply, your investors need you to succeed. Your investors likely have other investments and can’t be expected to know exactly where to help each company. In a crowded space building, strong relationships centered on trust and transparency is an easy way to stand out amongst other startups. By sending regular investor updates you can stay top of mind for your investors and tap into their knowledge, resources, and capital to continue to grow your business. Below you will find our guide to help you write the perfect investor update by understanding what metrics and data to share, properly asking for help, sharing big wins and losses, and raising additional capital. We’ve also included 7 of our favorite investor update templates. Related resource: What is a Capital Call? Essential Communication We believe that regular communication with investors and important stakeholders is key to a startup’s success. If your investors don’t know what’s going on in your business, they don’t know how to help. Building a reporting cadence with your investors is a great way to promote transparency and build a relationship focused on trust. Related Reading: Should You Send Investor Updates? Follow-On Funding One of the biggest reasons to report to your investors is the increased likelihood of follow-on funding. In our own research, we have found that companies that regularly communicate with their investors are twice as likely to raise follow-up funding. Try Visible to find investors, track your raise, share your deck, and update investors. Give it a free try for 14 days here. Networking Opportunity Generally speaking, investors' networks often have had experience as an operator and investors. Tapping into their network can be an easy way to find introductions to investors, partners, potential hires, and mentors. Getting an investor to go to bat for you will likely carry a bit more weight. As Tomasz Tunguz, VC at Redpoint Ventures, states; “Investors network frequently, work together, and have long-term relationships with each other so a referral should go a long way.” Finding Talent In hand with tapping into their network, investors are a great resource when it comes to hiring top talent. Between their other portfolio companies and previous experience most investors likely know a number of solid candidates to fill a role. If they don’t have someone in mind for the job, they can at least help talk you through the different candidates you are weighing for an open position. Knowledge and Experience Between their own experience and other portfolio companies, investors have seen just about anything. If you have an operational or tactical question investors are a great resource and can lend experience and knowledge. Related Resources: Our 15 Favorite Newsletters for Startup Founders How to Write the Perfect Investment Memo 3 Tips for Cold Emailing Potential Investors + Outreach Email Template Accountability & Reflection One of the often overlooked benefits of sending monthly investor updates is the reflection and accountability it offers founders. Investor updates can be a great forcing function for founders to look back at the previous month or quarter and better understand what is and is not working for their business. Related Resource: Investor Relationship Management 101: How to Manage Your Startups Interactions with Investors Tips For Writing Investor Updates Investor updates can be a tricky balance between informing investors and keeping things succinct and digestible. Most things boil down to keeping your updates consistent and regular. Keep the Cadence Consistent If you commit to sending a monthly update, you'll want to make sure you stick to sending an investor update every month. Skipping an update when times are tough can be a negative signal to investors. Keep Metrics the Same Make sure to keep the metrics you are tracking stay the same from month to month. For example, if you are calculating net new MRR using a certain formula, keep that consistent from month to month. Stick to a Format When creating an update, sticking to a regular format or template is a great way to help get the ball rolling every month. If you're not sure where to get started, we studied our data to understand the most popular components included in Visible Updates, check it out below: 81% of Updates include “Highlights” 47% of Updates include a “Team” section 42% of Updates include “Product Launches” 42% of Updates include a “KPIs” section 39% of Updates include a “Fundraising” section Investor Update Templates: Examples For Your Next Update Sending your first investor update can be a daunting task. We believe that the best place to learn is from someone who has been there before. Luckily, countless founders and investors have shared their templates and best practices for sending investor updates. We suggest starting with a template you like and tweaking it to your needs (more on this later). Once you’ve found your format, it is all about making sure you keep tabs on the data and context so you are not scrambling when it is time to send. A couple of small steps when sending your first Update: Gather your data — As you should be sharing other a few metrics with investors, it is important to keep tabs here. These should be vital to your business and something that you have on hand at all times. Review the month — A perk of sending an investor update is the ability to look back at the previous month. Think about any major highlights, lowlights, areas you need help, so you can start to craft your Update. Add context — Sharing your data without context can be dangerous. Do your best to explain any metric movements. Send it — Getting your update sent out a consistent basis is a win. If you’re looking to get an idea of when founders using Visible send their Updates, check out our post, “Most Popular Times to Send Your Investor Update.” 1. Techstars Minimum Viable Update In the “Minimum Viable Investor Update”, Jens Lapinski, Former Managing Director of Techstars METRO, lays out 3 items that he finds most useful in his portfolio early-stage company monthly updates. 2. Founder Collective “Fill-in-the-Blank” Investor Update Email Template An investor Update template for busy founders put together by the team at Founder Collective. Simply fill out the bolded sections and have your investor Updates out the door in no time. 3. Kima Ventures Investor Update Template An Update template put together by Jean and the team at Kima. Quickly fill in the quantitative and qualitative data Kima finds most useful. 4. GitLab Investor Investor Update Email Template A 6 part template put together by the team at GitLab. Built for investors to quickly read and locate the information that is most relevant to them. 5. Y Combinator Investor Update Template An investor update template from Aaron Harris of Y Combinator. Aaron recommends highlighting repeatable key performance indicators (KPIs) and major asks for your investors. 6. Shoelace: Investor Update Email Template A template based off of Reza Khadjavi’s, Founder & CEO of Shoelace, investor update email used to wow investors. 7. The Visible “Standard” Investor Update Email Template Our Standard Monthly Investor Update template put together from best practices and tips from Visible users. For more ideas, check out our investor update template library here. Related Reading: 4 Items to Include in Your Next Investor Update (If You Want to Drive Engagement) 8. Bread & Butter Ventures Update Template Bread & Butter Ventures is an early-stage VC firm based in Minnesota investing globally while leveraging their state and region’s unparalleled access to strong corporate connections, commercial opportunities, and industry expertise for the benefit of our teams. Learn more about what Brett Brohl of Bread & Butter Ventures likes to see in an Update below: Sharing Metrics and Data Determining what metrics and key performance indicators (KPIs) to share with your investors can be tricky. There are a slew of different key metrics and different investors may have their eyes on different things. Changing metric names or what you are reporting can be an easy way to break trust with investors. At the end of the day, it is most important that you share the same metrics from month to month. And as we’ve discussed before, it is okay to share bad months! We suggest sharing a handful of key performance indicators (KPIs) with your investors. Depending on your relationship, some may only want to see 3 metrics while others may want to see 10. Talk with your investors and discuss what types of key metrics they’d like to see. A couple of examples are churn rate, number of active users, monthly recurring revenue (MRR), burn rate, and more. Related reading: Startup Metrics You Need to Monitor Every company has missed the mark and any investor is aware that this happens. Building a company is hard! With that being said, we do have a few areas where investors would expect some data: Revenue Being able to generate revenue is essential to a business. However, you determine to measure revenue should be kept consistent from month to month. For example, don’t share bookings one month and revenue the next. For SaaS companies, including your monthly recurring revenue (MRR) and the movements are always good to include as well. Cash Flow Cash is king. Cash is the lifeblood of your business and investors expect some insight into how their capital is being managed and used. This is also a great way for you as a founder to stay accountable and on top of your spending as you continue to grow your business. Burn Rate As we mentioned above, cash is king. By tracking and reporting your burn rate, you will be able to avoid surprises with investors. A common mistake we see founders make is surprising their investors when their cash balance is low and months to 0 is nearing. Sharing your burn rate is an easy way to build trust with your investors and give them a better idea of when you’ll need to raise a new round. Margins Generating solid margins is a must for any successful business. Except the “gig economy,” Frank Mastronuzzi of Greenough Consulting Group suggest that every business should have at least a 55% margin. While likely more important during a fundraise, sharing your margins will help investors evaluate your COGS and acquisition costs. Number of Active Users Depending on your company goals and KPIs, the number of active users could be valuable to understanding growth. Churn Rate Being able to keep your burn rate under control is an easy way to grow your business. In the early days, some investors may want to keep close tabs on burn rates to understand what part of your funnel may be lacking. Customer Acquisition Costs Being able to efficiently acquire and expand customers is a surefire way to grow. Without a sustainable way to acquire new customers, a business will struggle to grow or even exist. Related Reading: Customer Acquisition Cost (CAC): A Critical Metrics for Founders Sharing Wins and Losses One of the most exciting aspects of being a founder is sharing and celebrating your victories. As we all know, with every victory comes plenty of losses. Investors are keyed in on your success so it is important to stress both wins and losses equally. Sharing Wins/Highlights With Investors Sharing your company’s accomplishments is generally pretty straightforward. Share why and how you accomplished your goal and carry on. Investors generally won’t be able to move the needle for your wins but is best to keep them informed so they can signal to their network of your successes. Most important is to call out individual contributors when it comes to sharing major accomplishments. All employees like to be recognized for their contributions and there is no greater place to do so than in front of your outside stakeholders. Along the lines of sharing individual kudos, it is also a great time to highlight new hires. A shout-out to new hires will make offer them a warm welcome and the chance to open up to investors. Sharing Losses/Lowlights With Investors The most dreaded and arguably the most important aspect of an investor update; sharing losses. Startups are hard and everyone involved with the process knows this. It is vital that you key your investors into any troubles you are facing and why you are facing them. We find it best to layout the lowlight and offer a solution to improve this moving forward (If you do not have a solution read on to the “Asking for Help” section below). Generally speaking, nothing is ever as good or as bad as it seems. Sharing bad news is an easy way to strengthen your relationship with investors and they know you’ll be open and honest with them moving forward. Most importantly, this gives your investors an opportunity to step in and help to keep you moving in the right direction. Related Reading: How to Deliver Bad News to Investors Asking Investors for Help Last but certainly not least is asking your investors for help. While every section mentioned above lends itself to asking questions, it is most important to lay out actionable questions where you believe your investors can help. By laying out a pointed list of areas you could use help, you can easily tap into your investors’ network, resources, experiences, and capital. A couple of key areas we see founders have the most success: Related Resource: Navigating Investor Feedback: A Guide to Constructive Responses Closing Deals From our article, “You Should be Asking Your Investors for Help. Here’s How.” “At its core, building a VC-backed business is about generating revenue. The biggest value add for a business? Closing more deals. Your investors are in the “deal-making” business and likely have a knack for closing deals. Use your investor’s professional networks to make an intro, set a meeting, or bring in the necessary backup to close a large deal. If you see your investor has a specific connection you’re looking for, don’t beat around the bush. Ask the investor for the exact intro you’re looking for and tell them how they can be of most value.” Help With Hiring Talent is the resource every company is in competition for on a daily basis. Any tool or resource you can use to find top talent for your business is worth leveraging. Investors generally happen to help fill an open role and often have an extensive network to do so. Be specific as possible about the role, as well as items like the experience level required, and target compensation to make it low-maintenance for your investors. Pro tip: Include a direct link to a LinkedIn search that fits the criteria of the person you’d like to hire to make it easy as possible for investors. Fundraising One of the main reasons to send investors monthly updates is the increased likelihood of raising follow on funding. If you have properly communicated with investors, chances are they will be more enthusiastic to invest in your next round. We have found that companies that regularly send investor updates double their chances of raising follow on funding. When it comes down to it and an investor has to make a decision between 2 investments; 1 that has been communicating and 1 that has not been communicating. It is easy to go with the one that has been transparent and has made an effort to build a relationship. Even if your investors are not interested in committing follow-on capital, they may be able to introduce you to other investors they know. Investors know other investors. Venture capital is a tight-knit community and one positive recommendation can make waves. Related Resource: 9 Tips for Effective Investor Networking Pro tip: Include a light version of your pitch deck that investors can circulate with investors they can make an intro to. Recommended Reading: How to Write the Perfect Investment Memo Investor Update Template Real Life Example If you’ve browsed through our investor update template, you’ve probably noticed they share a lot of similarities. Most of the Updates include the sections listed above. Of course, every business is different. The size, stage, and relationship with your investors will impact your Update template. In order to help you best write an Update, let’s use a real-life example. Let’s say we are a seed stage SaaS company that has recently raised $1M and we are starting to scale revenue: The Intro First things first, we need to write an introduction. This can be as personalized or informal as you’d like. We suggest something like the following: “Hey Investor Name — Hope all is well! I can’t believe August is already in the books. We had a great month that we’ll dig into below. As always, feel free to reply back to this email with any questions or give me a call at 123.456.7890.” Highlights We suggest starting with highlights. This will set the tone for the Update and give investors a quick rundown of what is going well for your business. This should include things like new hires, product updates, and growth (always try to quantify if you can!). Here is an example of some company highlights: We just hired person X to head up our sales team. They bring 10+ years of experience in the space and are going to be a great fit. You can connect with them on LinkedIn here. We have finally gotten New Product Y out of beta and into the hands of our users. Early signs show a big opportunity. We’ve increased usage by 50% week over week and have already exceeded our quarterly goal of Y users. Our sales team is on fire! We’ve closed our largest 2 clients to date — Big Name A and Big Name B. Both are great logos and are our largest contracts to date. Lowlights Sharing lowlights is never. However, it is a crucial part of building trust with investors so they can help you overcome pain points. Including steps for how you plan to fix the problem is always appreciated. Check out an example below: We have been struggling to find a customer success leader. We’ve opened up our search to new job boards and are offering a bonus to anyone who refers a new hire. If you know anyone that fits these parameters, please send them our way. New trials have been lagging behind pace. In order to help get this back on track, we are bringing in an SEO specialist to help us increase website traffic and website-to-trial conversion. Asks Ask are potentially the most beneficial aspect on an investor update. As you are requesting help from your investors, be as pointed and direct as possible to make it easier on them. Here are some examples: Here is our target list of investors for our Series A round and our most up to date fundraising deck. We’re looking for introductions to any of the investors listed in the ‘Research’ stage. We’re looking for introductions to candidates for this [specific job title] in the [specific industry]. Ideally, this person would work at a company with at least X employees and control his own budget. Do you know someone I should meet in [specific city]? I’ll be traveling there next month and am trying to fill my calendar. Metrics As we mentioned above determining what metrics to share is up to you and your investors. For our example, we’ll focus on a couple of key metrics every company should be tracking. Here is an example of how you might present that data: KPI 1 As we mentioned earlier, revenue has been cruising this month. It is our best month to date and we’ve closed our largest customers. KPI 2 As you know, our team has been rallied around improving our True North KPI. Our recent product pushes and GTM campaigns have really paid off as shown above. KPI 3 I feel great about our cash position. We have 18+ months of runway so I can stay focused on building the business and don’t have any immediate need to raise capital. Try Ranking Your Investors Just as investors are comparing you to their other investments don’t be afraid to rank your investors relative to their peers. As Brock Benefiel, business author writes, “Ranking investors can be an intimidating idea, but when done right can provide a useful way for founders to spur increased engagement from their investors and better illustrate their additional needs from the board. To handle it in the most tactful manner, focus less on creating a zero-sum, Game of Thrones-style battle between investors for the top spot and instead provide up-to-date developments on how investors have made a specific impact on the business.“ Related Resource: Investor Relationship Management 101: How to Manage Your Startups Interactions with Investors Related Resource: How to Find Investors Related Resource: 6 Helpful Networking Tips for Connecting With Investors Get Started with a Visible Update Template Getting in the habit of sending monthly investor updates is a surefire way to help with fundraising, hiring, and growing. To get started, pick a template from our library and tailor it to your business. Just remember that at the end of the day, sending anything is better than sending nothing at all. Related Resource: Best Practices for Creating a Top-Notch Investment Presentation Visible allows founders to update investors, track key metrics, and raise capital all from one platform. Try Visible for free to send your next investor update. To learn more about sending your first update with Visible, check out our guide (with videos).

As Matt Blumberg, CEO of Bolster, put it, “Leading a world-class board is one of the single most important things startup CEOs can do to help their businesses thrive and become industry leaders.” A crucial part of managing a board is the recurring board meeting. Many aspects impact a meeting but a well-crafted board deck can help strengthen a board meeting and empower the board and leadership team to make better decisions. Related Resource: How to Create a Board Deck (with Template) Learn more about crafting a SaaS board deck for your next board meeting below: The Power of a Well-Crafted SaaS Board Deck A well-crafted board deck can elevate a board meeting from good to great. A board is a valuable resource for founders and should be supported by founders as such. By properly preparing for a board meeting, founders and board members can leave the meeting with clear next steps, an understanding of impending challenges, and objectives for the board and team. Key Components of a SaaS Board Deck Every business and board is different. Different board members will likely want to see different discussion items and formats. Founders need to work with their board to find a format that works best for their team. Related Resource: Tips for Creating an Investor Pitch Deck However, there are some typical components that most founders and board members can expect to hit on in a SaaS board deck: 1. Executive Summary (CEO Update) Most board members will want to see an executive summary or CEO update. This can be a simple breakdown of highlights, lowlights, areas of focus, and any major news on your mind. This sets the tone for the meeting. When sharing lowlights, we recommend tying them into later discussions and working sessions. Pro tip: Take a look back at your investor updates from the month or quarter to help take a look back on the period. Related Resource: How to Get the Most Out of Your Next Board Meeting 2. Department Updates Next, we recommend spending a few minutes on department updates. This can be any major changes to hiring and headcount, open job positions you are actively looking to fill, and any highlights or changes related to company culture. 3. Product Roadmap Developing products is crucial for SaaS companies. Most board members will want insight into your product roadmap and how you are approaching monetization. This can include a recent product that was released with early usage data and a vision of where your product is headed over the next quarter. Board members might not be pros in your product/market so keep things high level and don’t spend too much time getting into the weeds — unless you have board members that will be able to offer insight into the market or product. 4. KPIs and Metrics Overview Board members will also want a look into KPIs and metrics. These should be metrics that stay consistent from meeting to meeting and are something that board members are familiar with. Similar to sharing a product roadmap, you’ll want to ensure you are not sharing too granular of data that can lead to confusion and loss of focus on the main objectives of the meeting. Pro tip: If you are regularly tracking your key metrics with a dashboarding tool it should be easy to pull data and metrics to prepare your board deck. 5. Financials and Projections The financial health of your business is crucial to board members. They will want a thorough understanding of your cash position and the financial health of your business. If you are consistently sharing updates with your investors and board members, there should be no surprises here. Board members will also want to look into your projections and understand how you are thinking about growth. 6. Working Sessions Lastly, board members can offer strategic help and advice when it comes to different aspects of your business. You can leverage working sessions to tap into their experience, network, and knowledge to help address potential challenges and risks that your business faces. Best Practices for Crafting a SaaS Board Deck Founders are busy. On top of the day-to-day duties of building a business, building a board deck can fall by the wayside. However, there are a few tips that founders can use to concisely craft a board deck. Check out a few best practices and tips below: Keep It Concise Yet Comprehensive As we alluded to above, you will want to find the balance of giving enough detail while keeping things clear and concise. Board members typically spend time with other companies and their careers so they will not understand your business at the same level that you do. However, you want to strap them with the information and data they need to help them succeed as a board member. Incorporate Data Visualization Wherever Possible Board meetings are full of a lot of information and data. Making the data and information as digestible and clear as possible to crucial to a strong meeting. We recommend leveraging data visualizations when possible. However, some visualizations can be confusing and lead to further questions. Keep your visualizations clear and simple. Storytelling Is Key Finding a flow and rhythm to your board meeting can be done with strong storytelling. Strong storytellers can tie in their data, challenges, customer stories, etc. to help board members stay engaged and get a good understand of the state of your business. Design and Aesthetics While the content of the board deck is what matters most a well-designed board deck certainly does not hurt. Finding the balance between a well-designed board deck and time is tricky. You will want to present your board deck in a polished and professional manner but do not want to take time away from critical business operations. At the end of the day, you want to make sure that your board deck portrays crucial information in an easy-to-interpret way. Start Your Funding Journey with Visible Running a successful board meeting can be a high-leverage activity for your startup. The easiest thing you can do is come prepared and ready to have a strategic conversation with the people who matter most to your business. Let us help prepare for your next board meeting or fundraising event. Raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days.

Startup founders are pulled in a hundred different directions on any given day. On top of building a product, hiring a team, fundraising, selling, and more, founders are responsible for managing relationships with investors and board members. Why is a Board Deck Important? Oftentimes, preparing for a board meeting can get buried in the list of to-dos. However, when leveraged correctly, your board members and meetings can be a high-leverage activity for success. As Matt Blumberg, CEO of Bolster, puts it, “​​Leading a world-class board is one of the single most important things startup CEOs can do to help their businesses thrive and become industry leaders.” To help you prepare for your next board meeting, we’ve put together a list of resources and tips to help you build and share your board deck. Learn more below. Related Resource: Our Downloadable Board Deck Template What Should You Include in Your Board Deck? The goal of a board of directors can be boiled down to helping a company achieve its goals. While there are certainly more areas, a board, especially for startups, is fit to help in a few key areas: Hiring and recruiting employees Provide direction and strategy for the company Represent other investors and members of the business Build a governance system Maintain relationships with CEO and executives To make sure that you are getting the most out of your board of directors, coming to your board meetings prepared is vital. One of the key aspects to help you guide your meeting and highlight key talking points is having a well-thought-out board deck. Learn more about what should be included in your board deck below: 1) A High-Level Update From the Founder To kick off any board meeting or board deck, there should be a quick high-level overview from the founder and/or CEO. The purpose of this is to set the tone for what is to come and a general overview of how the past period (month, quarter, etc.) went for the business. Be sure to share any big wins from the previous period or quickly hit on things that might be negatively impacting you and your company. Think of this as the “big picture” for both the previous period and the company as a whole. Using the sections below, you can use the high-level update as a time to quickly hit on each of those to set expectations for what is to come throughout the meeting. Related Resource: Crafting the Perfect SaaS Board Deck: Templates, Guidelines, and Best Practices 2) A Section on KPIs and Metrics Next, dig into the KPIs and metrics from the previous period. The purpose of this is to give everyone the proper data and context they need to understand decisions that will be made later in the meeting. These metrics and KPIs should be agreed upon beforehand and everyone in the room should understand what they mean and how they impact the business. It is important to keep these metrics consistent from meeting to meeting. This helps everyone focus on what truly matters and will build trust with investors. It is worth noting that this could include qualitative metrics as well — customer stories or quotes are always great to share! 3) An Update on the Team and Organization as a Whole After digging into your KPIs and metrics, spend some time on your org chart and hiring plans. One of the places boards are best suited to help with is hiring and finding key talent so making sure you make the most of this section is vital. We recommend starting with a current org chart so investors and board members can understand where your headcount lies. From here, we recommend hitting on what teams need additional talent and walking through the roles you are hiring for. Be prescriptive as possible so they can reach out to their networks and find candidates for your company. 4) Product Development Update At this point, you’ve likely hit on the organization as a whole and how the business is performing as a whole. Next, you will want to dig into the product development and status of any new features or products you’ve released or been working on since your last meeting. This can be a time to provide additional metrics or share stories of how a new feature might be impacting your business. This can be used to further working/strategy sessions towards the end of the meeting. 5) An In-Depth Section on Organizational Strategy and Product Strategy Towards the end of your meeting is the true “meat and potatoes” of your meeting. This is a strategy or working session that should give you concrete steps and plans to take away from the meeting. It is generally recommended that this section should take 50%+ of your meeting time. This section can cover just about any issues you are facing as a founder (keeping in mind what your board members are best suited to help with). For example, if you are facing hiring challenges, highlight those and discuss what you want your org chart to look like. You can use it to plan a fundraising or financial event in the coming months. Or you can use this as a time to build a higher-level product roadmap. No matter what you use this for, make sure you have your talking points prepared so you can make the most of this section. 6) A Miscellaneous Chapter As always, save some time for miscellaneous or other topics. This can be official board business or governance. This might cover things like board resolutions, appointments, stock options, and more. Related Resource: What We’ve Learned From Investors About Running a Board Meeting Tips for Creating a Board Deck While there is no one-size-fits-all template to help you knock out your next board meeting deck, there are resources and best practices that you can use for your next meeting. Use a Template As we mentioned earlier, there are ~6 key areas you will likely want to hit on throughout a board meeting. Of course, the specifics and structure will vary from business to business. To help you select what is most important to your business, we’ve put together a board deck template. This template aims to help you structure the meeting and build your agenda. Give the board deck template a try here: Keep Slides Simple The goal of a board meeting is to prompt conversation. To do this, it is important to make sure your slides are simple and easily digestible. Make sure your slides are not full of unnecessary words and context. Use bullets and your narrative to help board members with any additional context they might need. Share Deck Materials Early To have the best conversation possible at your board meeting, you need to make sure everyone on your board is well prepared. To do so, make sure you are sending your board materials in advance so they can have an understanding of the past period and will be able to dig into tactical questions. As we wrote in our post, How to Get the Most Out of Your Next Board Meeting, “Most founders/CEO have found it best to send over their pre-meeting report/packet at least 4 days in advance.” Depending on your meeting cadence, you will want to send over things like your agenda, important matters, metrics, and more before your next board meeting to set the stage. Check out an example of what to send below: Related Resource: Pre-Board Meeting Update Template Use Visuals Ultimately the content of your deck is what matters most but having polished visuals certainly does not hurt. We suggest using concise and repeatable visuals in your board decks. For example, if you include a certain chart style/format, try to keep it consistent from deck to deck. There are also opportunities to improve your board with simple visuals and charts to help your board members visualize your company's status. Common Mistakes to Avoid When Creating a Board Deck Finding the right board deck format and style will likely take a few reps. As you sit through more board meetings, you should hear feedback and suggestions to help improve the actual format and content of your board decks. However, there are some common mistakes you can avoid from the get-go — check them out below: Not Having a Deep Understanding of Your Audience Board members want to see that you have an understanding of your audience — both themselves as stakeholders and your customers. Make sure that you are hyperfocused on your key stakeholders. This will help board members build conviction and trust in how you operate your business. Not Having a Clear Objective What do you want your board to accomplish after reading your deck? Do you want them to make a decision? Approve a new project? Provide feedback? Once you know your objective, you can structure your deck accordingly. Overloading the Deck With Information Your board deck should be concise and to the point. Avoid including too much information, as this can overwhelm your board and make it difficult for them to focus on the most important points. Too much information can also lead to questions and concerns about unrelated points/problems that you are trying to solve. Using Too Much Industry Jargon or Technical Language While your board should be familiar with your business, they are likely helping many other companies. To make sure everyone is on the same page, make sure to avoid technical language — it may seem obvious to see but is not always the case for someone not involved in the day-to-day. Start Your Funding Journey With Visible Running a successful board meeting can be a high-leverage activity for your startup. The easiest thing you can do is come prepared and ready to have a strategic conversation with the people who matter most to your business. Let us help prepare for your next board meeting or fundraising event. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

There are not many people who have been in the role of a startup founder. For many startup founders, this means taking on new roles and responsibilities that they might not have experienced before. When facing these challenges, it helps to have someone guide you along the way — this can be an investor, peer, mentor, or someone else with experience. Soliciting feedback from the investors around you is a great way to tap into their network and experience to keep moving forward. Investors typically have had experience as operators themselves or the other founders in their portfolio. Understanding the Value of Investor Feedback As Seth Godin wrote in Beware of Experience Asymmetry, “There are things you’re going to do just once… In these situations, the institutions and professionals you’re dealing with have significantly more experience than you do…In these asymmetric situations, it’s unlikely that you’re going to outsmart the experienced folks who have seen it all before. It’s unlikely that you’ll outlast them either. When you have to walk into one of these events, it pays to hire a local guide. Someone who knows as much as the other folks do, but who works for you instead.” Many of the roles you face as a founder can fall into this bucket — raising capital, going through a merger or acquisition, going through legal counsel, etc. When facing these new roles and challenges, it often helps to find someone around you who does have experience. If you have investors, this can typically be a great place to start. Many investors have experience as operators but if they don’t, they typically have a large network of founders and other investors. This means that they’ve likely seen the challenges you’re facing, directly or not, before. Why Does Investor Feedback Matter? As we mentioned above, investors typically have experiences and a network that will lend useful feedback when it comes to fundraising, hiring, company strategy, etc. Related Resource: How to Build Trust Through Investor Feedback Investor feedback can be particularly important when it comes to raising venture capital. At the end of the day, you are pitching investors so welcoming feedback can be a great way to tweak your pitch for future investors. However, just because an investor offers feedback does not mean it is right for your business. Remember that you know more about your business than any investor so be critical about what feedback you put to use. Core Principles for Constructive Responses As we mentioned above, not all feedback will be relevant to your business. However, welcoming a conversation and hearing out their point is a great way to strengthen your investor relationships. Check out a few key principles for constructive responses to investor feedback below: Active listening If you are going to solicit feedback from an investor it is important to be respectful and actively listen. This includes hearing out what they have to say, even if you do not agree, and asking follow-up questions as you see fit. Reflecting and analyzing Just because an investor offers feedback does not mean you need to take it. At the end of the day, you know your business the best. It is important to reflect and analyze the feedback you receive. Seeking clarification Instead of assuming feedback means one thing it is important to seek clarification if there is any confusion. This will not only help you get to the bottom of their suggestion but will demonstrate to them that you are taking their feedback and time seriously. Collaborative problem solving If you are seeking feedback from an investor it should be someone you trust and value. By them offering feedback it is an open door to further the conversation and collaborate on the problem you are solving. This can not only lead to a better outcome but a strengthened relationship for future conversations. 5 Strategic Ways to Collect Investor Feedback Write a transition paragraph that introduces the next section. Feel free to add/remove/adjust the below techniques for gathering feedback 1. One-on-one meetings One-on-one meetings are likely reserved for investors with whom you have existing relationships. This means that they likely have some familiarity with your business and will be able to offer sound feedback. Advantages No bias from other investors or people in a meeting. Make specific asks based on their own skillset/experience. More personal and genuine feedback. Related Resource: The Complete Guide to Investor Reporting and Updates 2. Pitching and Events Pitching inventors or attending events can be a great way to get feedback from investors who are outside of your network. While they might be new to your business they can offer valuable feedback on how outsiders view your business and your pitch. This will allow you to tweak and improve your communication for future pitches. Advantages Receive feedback based on your pitch and presentation. Pitch feedback will help you improve your pitch for future meetings. Investors you are pitching are likely new to you and can offer a new perspective. 3. Investor Updates Regular investor updates are a great way to get into a rhythm of regularly asking your network of investors for feedback. This will not only allow you to solicit feedback but will help you strengthen relationships and become top of mind with your current and friendly investors. Advantages You can be targeted in asking for what areas you are asking for feedback. Anyone receiving your investor updates is likely invested in the success of your business and will offer honest feedback. You can stay top of mind with investors by asking for honest feedback. Related Resource: How To Write the Perfect Investor Update (Tips and Templates) 4. Board Meetings Board meetings are an important tool for startup founders. This is your chance to dig into several problems your business is facing and dig into them with your most trusted partners. Board members should know your business well and should offer pointed feedback that is worth hearing out. Advantages Board members are the most invested in the success of your business and will offer feedback that is best for the business. Board members know your business well and can offer feedback on factors specific to your business. You can set the agenda and lead the conversation and areas you need feedback at a board meeting. 5. Email & Phone Communication Email or phone communication is a great way to get real-time feedback and suggestions. This is typically less formal and allows investors to share honest and raw feedback that will lead to further conversation and collaboration. Advantages Someone you are willing to email/call is likely someone you trust/have a good relationship with. You can receive honest and real-time feedback when working with someone directly. This leads to easier conversation and digging deeper into the problem you are facing. Find Out How Visible Can Help You Connect With the Right Investors Visible is your hub to improve investor relationships. From sending investor updates to sharing a pitch deck to monitoring ongoing investor conversations — we’ve got you covered. Get started with Visible and give it a free try for 14 days here.

Visible recently released Segment Metrics, a premium portfolio insights tool for VCs. The solution empowers investors to answer key questions about their portfolio performance in seconds instead of hours. How investors can unlock portfolio insights faster with Segment Metrics With Segment Metrics investors can find insights related to the sum, average, minimum, and maximum for any custom segment of their portfolio metric data and investment values. Example Segment Insights Examples of insights that can be uncovered with Segment Metrics include: The amount invested in female founders vs non-female founders The breakdown of investments based on sector, geography, and stage A comparison of revenue across seed-stage investments Investors can keep track of these insights by embedding the data visualizations on flexible, shareable dashboards in Visible as shown in the example below. Learn more about setting up Segment metrics in our Knowledge Base. Learn More About Visible Visible has a suite of tools to help with portfolio data analysis including Robust, flexible dashboards that can be used for Internal Portfolio Review meetings Portfolio metric dashboards to help with cross-portfolio insights Learn more about how 400+ Venture Capital investors use Visible to streamline their portfolio monitoring and reporting.

On October 8, 2023, California Governor Gavin Newsom signed into law Senate Bill 54. This law mandates that venture capital firms report the diversity of the founding teams in their portfolio to California’s Department of Civil Rights (DCR) annually. Why is Senate Bill 54 important? This law is the first piece of U.S. legislation aimed at increasing diversity within the venture capital industry which historically has allocated only 5% of capital to startups led by women, Black founders, or Latinx founders in any given year (source). When does Senate Bill 54 go into effect? The first report is due March 1, 2025. This means firms will be required to report accurate diversity data on investments they made during the 2024 calendar year by the start of March. Firms who do not comply may face a penalty as decided by the courts. Combine your firm’s diversity and portfolio KPI reporting processes with Visible. Which VC firms does Senate Bill 54 apply to? Senate Bill 54 applies to any VC that: Is headquartered in California. Has a significant presence or operational office in California. Makes venture capital investments in businesses that are located, or have significant operations, in California. Solicits or receives investments from a person who is a resident of California. Related Resource: California Adopts New Law Requiring VC Companies to Collect Diversity Data From Portfolio Company Founders What diversity information will be required? VC firms will be required to ask portfolio company founding teams to report their race, ethnicity, disabilty status, and sexual orientation. (Read the full requirements outlined in Senate Bill 54) Firms are required to make founders aware that this information is voluntary and founding teams will not be penalized for not reporting this formation. The information must also be collected in an anonymous fashion so that responses cannot be traced back to a founding team member. This information will be aggregated and reported to California’s Civil Rights Department (CDR) on an annual basis. Related Resource: 5 Actionable Steps to Improve Diversity at Your VC Fund Getting a head start on portfolio diversity reporting It’s important to make sure your firm has the internal capabilities to collect the required information from your portfolio companies before Senate Bill 54 goes into effect. Visible’s Request feature streamlines the way investors collect custom KPI’s and diversity information from their portfolio companies.

Did you know that 60% of investors don't hear from their portfolio companies on a regular basis? This means that the startups sending regular communications to their investors stand out the most. In fact, startups that provide regular investor updates are 3x more likely to receive follow-on funding. Making the time to write a compelling investor update regularly can be challenging for startup founders. This is where Visible AI Updates comes in. What is Visible AI Updates Visible AI Updates automatically turns Visible Request responses that portfolio companies submit to Visible into a narrative Update that startups can use to share with other investors and stakeholders. This equips founders to send regular, professional communications to all their greatest supporters (and sources of follow-on capital), with ease. Learn more about Visible AI updates and how you can leverage it with your Visible account below. How it Works Visible AI Updates is available to founders who are completing Visible data Requests from their investors. Using the metrics and qualitative answers from a data Request, Visible AI Updates adds context and builds charts to turn the information into a Visible Update that can be shared with other investors and stakeholders. Visible AI Update Example Using the qualitative answers and data included in your Request, we’ll help you turn the response into an Update using the following logic: “{Company Name} Investor Update” — For example, “Acme Co Investor Update” In order to create the content of the update we built a prompt for OpenAI that contains questions and answers from the request. We will create charts and tables for any metrics using the following logic: If a metrics question contains >3 metrics we will create a single table with all these metrics within the update Otherwise, we create bar charts for each metric in the question. Note: if a metric only has a single data point we will create a number chart instead. As always, we recommend reviewing your Update and making sure all of the content is correct and fits your voice. You can check out the full example of the Update here. Visible AI Updates Takeaways Providing investor updates regularly increases your likelihood of success and your ability to fundraise Visible AI transforms your Requests responses into a professional narrative update that you can share with all your stakeholders The Future of Visible AI This is our first introduction of AI into the Visible platform. In the months ahead we plan on exploring AI models to help with fundraising email copy, identifying potential investors for your business, and more. We are always looking for feedback. Feel free to share your AI-related ideas to support at visible dot vc.