Reporting

You do a lot of work for your investors. Regular updates keep your board abreast of the latest company developments and current performance metrics. Monthly or quarterly meetings keep you accountable to their questions and concerns. You’re expected to answer their inquiries in a timely and satisfying manner. All of that accountability is wonderful, but it should also work both ways. One of the most valuable aspects of your investor updates is the opportunity it provides founders to make targeted asks of their VCs. After all, you chose these folks on the strength of their experience, capital and network. Accessing those resources with a focused request can be one of the best ways to improve your business. But inevitably, some investors will be better than others when it comes to tapping into their networks and assisting their founders. It’s not a bad idea to let them know where they stand and provide a nudge for improvement. 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. To succeed in doing so, you need to show contributions in several categories – a nice mix of hard metrics like # of intros alongside less qualitative items like offering good product advice. Here’s what I recommend: Ranking Your Investors by Hard metrics Nothing quite beats delivering clean data to convince your VCs of their value or their need to do more. A regular report on these three critical categories can encourage greater participation using nothing other than the facts. Referral revenue – Investors help drive deals. It isn’t a terrible idea to tie revenue directly to each investor or firm and be transparent with the entire board of this growth metric. Your board is likely comprised of a competitive group. Developing a referral revenue leaderboard won’t be the only way you’ll assess contributions, but just putting these numbers down on a one-sheeter could be a great way to fire up VCs to go out and hunt deals for your business. Capital – If you need follow-on funding from your board, you’re going to be asked to deliver data and provide a convincing argument for the initiatives that need cash to scale. Once you’ve completed their requests, it isn’t a terrible decision to start compiling a report that details the contributions of each investor as well and share these dollar figures. You’ll want the help of your current board to assist you in your raises. Detail who matters most. Investor referrals – In addition to follow-on funding from their own pockets, you want your investors to help facilitate venture deals with investor referrals. If members of your board make warm introductions that later lead to signed checks, track that money like a sales lead so an investor’s value isn’t solely tied to the size of their bank. Also, providing examples of referrals that have worked well can be an exciting talking point to inspire other investors to make additional introductions to close your rounds quickly. Human Resources Beyond the easy-to-quantify metrics, there are two core contributions investors can make to attract and retain talent. Here is how to leverage transparency in order to improve their commitment. Employee referrals – Money and deals will keep your startup afloat, but in the long-run, you need top talent to beat the competition. As you build out your leadership team, your investors should be your best recruiters. Their referrals can cut down on the time it takes for you to hire and ensure quality candidates will make the most of your time. The value of one’s networks can be easily shown by identifying for the group who is doing the best to fill the ranks. If a board referral leads to a hire, detail this in your investor’s contributions during your regular update. Employee training – Your investors’ responsibility for human resources doesn’t stop at employee referrals. “Traditionally, VCs and platform teams have helped their portfolio companies attract the best talent by providing recruiting and hiring support,” Maria Palma of RRE Ventures writes. “But recently, some VCs have also started to help their companies on the development and retention front. Many are now offering ongoing training, coaching, and proactive solutions to address the common leadership and management challenges that occur frequently as startups scale.” In order to encourage these contributions, you might both quantify the time they invest in these efforts and outline the specific areas where they’ve filled a need. This informs your entire board of what’s going on with investor-assisted retention efforts and builds a template for employee support in the future. A concise update to encourage contribution Compiling these data points and informal efforts into a single slide or one-sheeter underlines its importance to your work, shows that you value their endeavors, and doesn’t unnecessarily embarrass anyone. After all, you may have a few in the group that have fallen short recently but will be motivated to catch up and make moves soon. A concise overview can be both constructive and respectful. It’s a good jumping-off point to ask for more. It also doesn’t waste their time. As for your own records, you might take a more blunt approach. It will be helpful to regularly review these data points and actually assign a numerical rank to each investor. That way, as you begin to scale and the stakes increase on investor relations, you never lose focus on who has objectively mattered most to the business.

Running a Board of Directors Meeting For most businesses, a Board of Directors meeting must be held at least once a year — however, some businesses may choose to schedule them more frequently. A Board of Directors meeting is an excellent opportunity to make sure that key stakeholders are on the same page. During a Board of Directors meeting, stakeholders will be updated regarding the status and finances of the business, as well as offered presentations regarding the company’s future. Perhaps most importantly, stakeholders will be allowed to vote on future strategies and directions. For startups, a board meeting is an data and people. In a board meeting, the right people are exposed to the right data. Profit-and-loss reports, general ledger sheets, and other financial documents are presented to key stakeholders, and these key stakeholders are able to synthesize this information into important insights. Further, board meetings provide a pathway through which key stakeholders are able to discuss the company’s performance. There’s a reason why board meetings are required: because they are essential to a healthy business. Startups often experience more volatile changes than other companies, and may face unique challenges. Consequently, startups may want to have more frequent board meetings, and may find that their board meetings are even more useful than they are in traditional, established companies. Even in preparing for a board meeting, a startup will be able to explore its performance and its challenges, locating and assessing its risks. However, challenges can arise when the principles of a startup don’t have the time to prepare for a board meeting, or feel as though they aren’t certain what’s expected of them. As many startups are loose and informal, a board meeting may provide an unnatural level of formality. Startup founders may need to research board meetings further if they want to run a successful one. Board Meeting Rules How are board meetings run? What are the board meeting rules? Board meetings are 5% the meeting itself and 95% preparation. Before the board meeting occurs, you will need to prepare all of your documents and presentations in advance. You’ll need to determine exactly what you want to talk about during the meeting, as well as establishing what your goals are for that meeting. Ideally, your business has already been tracking its KPIs, metrics, and financial data. After the board meeting is scheduled, and before it starts, you should consider the current state of the business. What are its largest risks and challenges? What items are of the largest strategic importance? Before your board meeting begins, you should: Have completed and compiled the meeting minutes from the previous board meeting (hopefully well in advance). Most board meeting rules of order will have reading the prior meeting minutes first. Prepare financial reports, analysis, and other documents for the board members to review. Board meeting protocol generally suggests that these be reviewed early on, though they will also be sent to the board members in advance. Identify the company’s greatest risks, assets, and challenges, especially those that are most pressing. Create strategies that you would like the board to weigh in on, whether they approve or disapprove. Define clear goals that you want to achieve by the end of the board meeting. Once you have these things in place, it’s time to create an agenda. Your board meeting agenda is comprised of the topics that will be discussed, in order. It’s intended to keep everyone at the board meeting on the same page, as well as to ensure that nothing is missed. Many boards don’t have the best time management, and can potentially spend all of their time on a single issue, when multiple issues need to be discussed. Your agenda should be sent to all the board members directly, before the meeting occurs, so they themselves have time to prepare for the meeting. While it’s just a general outline of the meeting to come, it should still give them enough information that they’ll be able to form some thoughts, opinions, and ideas. A board meeting is a collaborative process, and your goal is to facilitate thought. To that end, your startup should be focused on presenting board members with the information that they need, as well as the challenges that are ahead. As mentioned, each board meeting and each company is different, and startup culture tends to vary significantly. Some startups may have looser and more frequent board meetings, while others may have infrequent, formal meetings. Some have strict board meeting rules of conduct, others don’t. Over time, you’ll discover what a normal “board meeting” for your startup looks like. Board Meeting Agenda What does the actual board meeting look like? How much time should be allotted for different things, and how do you go about voting for specific agenda items? Your board meeting agenda will provide a significant amount of guidance at this stage, but a traditional board meeting will look like this: Review the meeting minutes from the prior meeting. Discuss the company’s financial documents. Address any challenges and risks the company is facing. Host any presentations, regarding the status of the business. Discuss forward-facing strategies for the business. Vote on key decisions regarding the company’s direction. Raise and discuss any additional motions. The agenda should be paced properly, so that everything on the agenda can be covered within the time that has been allotted for the meeting. You will need to take control of the meeting, keeping an eye on the clock, and making sure that the board meeting doesn’t get bogged down. Understandably, the voting aspect of board meetings is often one of the most important. As key stakeholders do have a say in the future of the business, the vote will represent the actions that the business is allowed to take moving forward. Most of the board meeting will be leading up to these votes. The financial statements, challenge statements, presentations, and strategies should all be offering potential solutions to these board members. These board members will then vote on these solutions. Board meeting voting procedure is generally as follows: A motion is put to the table and discussed. Affirmative and negative votes are given. The affirmative and negative votes are tallied. This is for pre-scheduled votes. For non-pre-scheduled votes (new motions), a motion will generally be raised by a board member. From there, it must be seconded by another board member, at which time it will then be put to the table and discussed. Adhering to board meeting voting protocol is often necessary for two reasons: it ensures that votes occur expediently, while also making sure that the vote (and accompanying discussion) remains clear and civil. Often, board meetings may involve votes on topics that the board members consider quite passionately. Robert's Rules of Order Robert’s Rules are an excellent way to maintain order and decorum throughout a board meeting. A board meeting, by necessity, has to be orderly. Even in the most informal of startups, it must at least be clear what is being discussed and what the results were of that discussion. Robert’s Rules of Order can be applied to virtually any type of meeting, with a board meeting being one of the most likely to benefit. It is focused both on conducting meetings generally and also making decisions as a group. Here’s a simple Robert’s Rules one pager: Under Robert’s Rules of Order voting is done through motions, which must be seconded, and when these motions are seconded, they are then voted upon. A motion is defined as an intent to do something. In a board meeting, any planned strategy or decision would be considered to be a motion. Under Robert Rules of Order motions and voting are done with a single speaker at a time: there is no cross-talk, leading to an atmosphere more conducive to progress. Under Robert Rules of Order voting procedures, debates often precede votes, so that board members can discuss votes in full, and each board member can be allowed to share their opinion. In general, a “quorum” is required for most meetings. A quorum is a minimum number of members that the board meeting requires to be considered a full board meeting. Under Robert’s Rules of Order, meeting members have the following rights: to attend meetings, make motions, speak in debate, and to vote. These rights can be applied easily to board meetings. Depending on the way that Robert’s Rules of Order are applied, votes may be required to be unanimous, two-thirds, previous notice, or majority. Robert’s Rules of Order for small boards can be used as a method of structuring board meetings, giving insight into the decision-making process for groups, as well as the most important factors to emphasize. In general, Robert’s Rules place an emphasis on ensuring that an agenda is designed and kept, that everyone has space to talk and discuss, and that discussion is kept orderly and clear.

Last week, we hosted a webinar on how to raise a Series A. In it, Zylo CEO & Co-Founder Eric Christopher and I shared tactics and advice on how to make sure your Series A raise is a successful one. If you made it, thanks! We had a great turnout of engaged audience members. If you weren’t able to make it, you can check out the recording below: Today, I want to share three key takeaways from the webinar, in the hopes that they might help you raise your next funding round. How to know if you’re ready to raise? Series A readiness is a difficult thing to pin down. So much depends on your specific situation: the industry you’re in, the product you’ve built, your business model. A good breakdown of specific numbers you should be hitting can be found here, but even that list isn’t universal. As a general rule, though, you’ll know you’re probably ready to raise your Series A when you have these three things: an engine, healthy metrics, and a compelling story to tell. “An engine” refers to a predictable engine for acquisition. Acquisition of what, exactly, will depend on your company; it could be users, customers, revenue, etc. The important thing is, do you have a predictable way to acquire more? Healthy metrics refers to three general patterns: accelerated growth, low churn, and efficient acquisition. If your metrics demonstrate all three of these things, you’ll be very attractive to potential investors. The third item is this: can you tell a compelling story? This is potentially the most important item of the three. Every investor wants to invest in a good story. If you can effectively communicate what you’ve done so far, then paint a clear picture of what the future will look like if you keep succeeding, you’re likely to have success with your raise. If an investor likes the sound of that future and they believe you can make it happen, they’ll invest. Before you raise, commitment is key If you think your company is ready to raise a Series A, the first thing you have to do is prepare yourself. You have a lot of hard work ahead of you. A Series A raise takes, on average, about 5.5 months to complete. That’s a lot of time where your focus will be outside of the day-to-day of your business. You’re also going to face a lot of rejection—the most common answer after pitching an investor, after all, is “no.” A CEO/Founder who is undertaking a Series A round needs to be fully prepared to do so—committed to seeing it through, confident in their pitch, and always working with a specific goal in mind. Before diving into your Series A raise, you need to make sure you’re prepared for what it means. Don’t forget about your current investors Your current investors can be absolutely essential in closing your Series A round—whether they participate in the round or not. If your current investors choose not to follow on—for whatever reason—they can still be a huge help to you as you raise your round. They can provide everything from pitch feedback to warm introductions to other investors who might be a better fit. These are just three takeaways from our webinar on raising your Series A round, but there’s plenty more content where that came from. Check out the recording below:

Y Combinator has funded over 1900 startups since their inception in 2005. In the process of funding those startups, YC receives thousands of investor updates on an annual basis. As Aaron Harris, Partner at YC, puts it, “At YC, we get lots of updates from our alums. There seems to be a correlation between quality and frequency of updates and the goodness of the company and founders.” Over the past year, we’ve had thousands of founders share Updates with their investors and other stakeholders. While investor updates come in all different shapes and sizes, we’ve found that most, if not all, include some form of the following: a quick recap of the last month, metrics and KPIs, and specific asks for your investors. To this point, Aaron Harris of YC suggests using the same components but has interesting thoughts about the order of these components what specific information should be shared. Metrics & KPIs Metrics and KPIs are included in almost every Update template we’ve seen come across our table. Including your key metrics with growth percentages is widely expected. Aaron Harris suggests sharing your KPIs and growth percentages first when reporting to your investors. Sharing high-level growth metrics and financial status metrics are what you are looking for here. Examples include revenue, cash in bank, and burn rates. No matter what you decide to share, make sure the metrics are defined and explained to your investors and repeated on a monthly basis. Targeted Asks Making targeted asks to your investors is arguably the most impactful part of an investor update. If engaged properly, investors are more than a source of capital. They have experience, advice, and networks you can leverage. Don’t be afraid to ask your investors help with closing deals, finding talent, and future fundraising. Regardless if you put asks first or second in order, Aaron recommends putting it as close to the top as possible to make sure your investors see it and can help where needed. Quick Recap Interestingly, Aaron suggests putting the qualitative recap of your month towards the bottom of your investor update. While we often see founders lead with a recap, ending with a recap will ensure that your investors see both your metrics and targeted asks. Make this as short as possible and be sure to only add things that are vital to your success. At the end of the day, investors are busy and you want to make sure they read your entire update. These are just a few elements to consider when deciding on the structure of your investor update. To see these elements in context or create an update yourself, check out our Y Combinator update template below. Check out an example of the Y Combinator Investor Update Here >>>

Point Nine Capital is one of the most—if not the most—sought-after early stage SaaS venture firm in Europe. With a portfolio that includes the likes of Zendesk, Front, and Algolia, the Point Nine team receives countless decks and pitches every day. Part of the reason they receive so many pitches is Point Nine Capital hosts a contact form on their website that allows visitors to begin the pitch process. We’ve scoured their blog to gather what we believe are best practices when filling out the Point Nine Capital pitch form. The Point Nine Capital Basics This is a pretty straightforward section with a few questions about the founder and firmographics. A couple of key questions: Which category/categories does your startup fall into? Point Nine is mostly known for investing in SaaS. However, they’re also interested in “internet startups” specifically marketplaces, AI, and crypto. If you fall outside of these categories, it may make sense to look to other investors. When did you launch? While your specific launch date does not necessarily correlate to what stage you’re at, Point Nine’s goal is to be the first institutional investor a company takes on. They consider this the “0.9 stage” or when you’re “too big for private investors, too small for most VCs – many startups find it hard to raise capital, and that’s when we’d like to get involved.” How much funding are you planning to raise? From the FAQ section of the Point Nine website, they generally invest from a few hundred thousand to 2 million Euros/USD. Point Nine generally has co-investors so if you’re looking raise much more than $3.5M, it may make sense to look elsewhere. To learn more about what Point Nine Capital looks for in terms of general company information check out A Sneak Peak Into Point Nine’s Investment Thesis. The Point Nine Capital Pitch Deck Point Nine has shared plenty of information for crafting and sharing the perfect pitch deck. It is their first filter when sorting through potential investments, and it can make or break your pitch. There is no formula for a perfect pitch deck, but it should always answer this question for a potential investor: “is this company likely to become far more valuable in the future?” According to Michael Wolfe—who is an advisor to Point Nine—a solid pitch deck will consist of the following: Summary – Orient the audience on what you’re doing, what stage, how much money you’re raising, etc. The problem you solve, and who has that problem – Pitch the problem, not the solution. Your Solution – Highlight your product. Show how and why your customers use your product. Customer Traction – Traction metrics and customer stories. The Market – Explain your Total Addressable Market Competitive Landscape – Talk about current market, future market, and your differentiators. Business Model – Talk about your revenue model, pricing, customer acquisition plan, etc. Team – Quick summary of your team and backgrounds. The Plan – Key milestones coming in the next 12-24 months. The Round – How much you’re raising, other investors, etc. If you’re interested in learning more about putting together your pitch deck, check out these posts from the team at Point Nine: A Simple Pitch Deck [Template] How to bulletproof your fundraising deck Why we politely ask for a deck first The Point Nine Capital Financials & Key Metrics Point Nine will ask for a set of your KPIs in the form as well. Don’t fret! They’ve shared content and templates for what they’re looking for. Christoph Janz put together a SaaS example of what they are looking for in this post. The team also put together a marketplace metrics template in this post. The metrics in the templates above can be fairly granular, so a lite version should do the trick. If you’re unsure about the state of your metrics, the team at Point Nine has also put together 6 SaaS metric frameworks to help benchmark against your peers: Revenue Growth: the T2D3 framework – The triple, triple, double, double, double framework. What your ARR should be growing at after every year. Revenue Growth Efficiency: SaaS Quick Ratio – Measures a company’s ability to grow it’s MRR in spite of churn. The LTV / CAC Ratio – How much revenue a customer generates as opposed to how much it cost to acquire them. Churn Benchmark – Benchmarks for SaaS company in different markets and stages. The 40% Rule – The idea that your growth % to profit % should be equal to or greater than 40%. Product Related Metrics – Find a “north star” unique to your business. While great financial metrics are important, they are not compulsory at the early stage for the Point Nine team. Clement Vouillon, Senior Research Analyst at Point Nine, put it this way: “we’re still investing in pre-PMF startups with barely no revenue, what will be important is that you have a huge potential, some early sign of interest from the users (great retention for example, even with a couple of B2B early adopters), or an outstanding team (with a trackrecord).” We hope these tips will help with your Point Nine Capital pitch. Ready to take your fundraising and investor relations to the next level? Check out the Founders Forward Blog to learn more about engaging and attracting investors.

“What should I include in my investor update?” If there’s one question we get more than any other, it’s that one. We hear it so often that we recently built a Template Library and filled it with example updates from well-known investors, industry experts and our own best practices. Some items, however, aren’t so easy to templatize, but they are great for engaging investors and getting them to act on your updates. Remember, the updates you send to your investors are for them, but they’re also for you. If you make it easy for investors to act on the asks you include in your update, they’re much more likely to do it. That means better outcomes for everyone. Related Reading: How to Write the Perfect Investor Update (Tips and Templates) Check out what we mean below: The LinkedIn Search Let’s say you’re trying to hire a senior engineer and want your investors’ help. There are two ways to ask: We’re trying to hire a Senior Full-Stack Engineer. Please let us know if you know of anyone who would be a good fit! OR 2. We’re currently looking to hire a Senior Full-Stack Engineer. Click here to search your network for someone you can recommend. Which option do you think your investors are more likely to act on? If you said Option 2, you’re right! If you click the link above, you’ll be taken directly to LinkedIn, and you’ll have a list of people that may be a good fit for a senior engineering role. By including a direct ask and a link like that in your investor update, you make it incredibly easy for your investors to take action right away, which means you’re much more likely to get the candidate introduction you want. Making that link is pretty easy—just do a people search based on the criteria you’re looking for in your own LinkedIn account. Here’s what that looks like: After doing your search, just copy the URL into your update. When your investor clicks the link, it will do the same search in their account. If you want to get really tricky, this article offers tips on how to build an advanced Boolean search in LinkedIn. You can also add filters based on location, past companies, and more. The more specific your search, the more likely you’ll get an introduction to a great candidate. Quick note: this technique was originally suggested by our friend Wes Winham at Woven Teams. Thanks Wes! The One-Click Tweet Your investors’ networks are an asset. If you want them to spread the word about your company, you should make it easy for them. That’s where the one-click Tweet comes in. Using ClickToTweet, you can create a pre-written tweet for your investors to share with their Twitter followers. Even if they don’t use your suggested text, directly asking them for a share—and making it easy for them to do it—greatly increases the chances that they will. You could use the one-click Tweet to get them to share a piece of content, a press mention, or anything else you want to promote. Here’s an example: We just launched our Update Templates Library! Click here to spread the word on Twitter! See how easy that was? The Bold Question If this one sounds simple, that’s because it is. We recommend putting an important question, written in bold, at or near the end of your update. Why? Because investors are busy people. No matter how much they like you or how supportive they are of your company, they likely aren’t reading every word of every update you send, especially not right when you send it. They may receive your update when they’re on the go, or a few minutes before they get on a call. In those cases, they’re likely going to check your key metrics, skim the text of the update a bit, and plan to come back to the rest later. Whether they actually make it back is dependent on everything from how they manage their inbox to their schedule for the week. When we talk to investors about what they want to see in updates, items like key metrics and progress toward goals come up a lot, but just as often we hear “I want my companies to tell me how I can help.” That’s why you should put a key ask toward the end of your update. Put it in bold so it stands out. If your investor takes away one thing from your update, it’ll be that question, which increases your chances of getting the help you need. The Reaction This last one only works if you’re using Visible for your investor updates. We recently added Reactions to Updates. It’s a simple feature that allows your update recipients to “react” to your Update with a thumbs-up. There are certainly times when an update is just an update, and it doesn’t need a reply or a particular action. In those times, it’s still nice to know that your work is being read and appreciated. A one-touch reaction is a low-effort way for your investors to tell you to keep up the good work. If you are a Visible customer and don’t have Reactions turned on in your account yet, shoot us a message and we’ll be happy to activate it for you. If you aren’t a Visible customer yet, consider signing up for a 14-day trial. Driving action with your updates is a great way to leverage your investors networks and expertise. Why don’t you try including one or more of these items in your next update?

What is Venture Capital? Venture capital is oftentimes a glorified funding option in Silicon Valley and the startup world. In short, it is a funding option that allows VC funds to buy equity in a startup. In turn, a startup is giving up a percentage of its ownership with the hopes of growing its valuation and creating a successful exit for everyone on the cap table. As put by the team at Investopedia, “Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.” To better understand the topic, find out more about the types of venture capital funding, when it’s used, potential benefits and pitfalls, the origins, and what it’s like to work for a venture-backed business. Related resource: How to Get Into Venture Capital: A Beginner’s Guide Who is Involved in Venture Capital? To better understand venture capital, you need to understand the people and players involved. For a quick rundown check out the definitions below: VC Fund — As put by the team at Investopedia, “Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.” General Partner — As put by the team at AngelList, “The general partner of a venture fund raises and allocates investor capital and supports the founders of the companies they invest in.” Limited Partners — As put by the team at VC Lab, “Limited Partners (LPs) are investors in your fund that provide capital. The most common types of LPs are high net worth individuals, pension funds, family offices, sovereign funds and insurance companies – just to name a few.” Let’s start with the entrepreneur or startup founder. If a founder is looking for capital for their business they might look to venture capital. As we mentioned above, venture capital is an equity funding option for startups. VC firms and funds invest in many companies (and the best ones are able to raise multiple funds). At the end of the day they are looking to create outsized returns for their investors. So who are their investors? Limited partners. LPs have limited control over the management of the VC fund. However, it is important to understand the LP <> GP/VC fund relationship to understand a VC fund’s motives. Limited partners are generally large investment firms that are investing across many asset groups — many of them public markets. As investing in VC funds is typically a small % of their overall portfolio, it is important for VC funds to generate returns in line or greater than the public assets in their portfolio. Because of this, VC funds will turn to founders and startups with the potential to create massive returns. Related Resource: Understanding Power Law Curves to Better Your Chances of Raising Venture Capital How Venture Capital Firms Work To best understand how a VC fund works you need to understand where they get their capital from and how they make money themselves. As we wrote in our Ultimate Guide to Fundraising, “In simplest terms, VCs go through a consistent life cycle that goes something like this: raise capital from LPs, generate returns through risky venture investments, generate returns in 10-12 years, and do it again.” At the start of a VCs lifecycle, they raise capital from limited partners (LPs). LPs are generally institutional investors (pension funds, endowment funds, family offices, etc.) that use venture capital funds to diversify their investments. From here, a VC deploys the capital they’ve raised from LPs into startups and other investments with the goal of generating returns for their LPs. Venture capital funds have traditionally been a very risky investment (with a huge upside) so LPs will generally only put a small percentage of their capital into venture funds. As Scott Kupor, Managing Partner at Andreessen Horowitz, mentioned in his book, Secrets of Sand Hill Road, “If you invested in the median returning VC firm, you would have tied up your money for a long time and have generated worse results than the same investment in Nasdaq or S&P 500.” 10-12 years after raising a fund, VCs are expected to generate returns for their LPs. If a fund manages to generate meaningful returns for their LPs they will raise another round and repeat the cycle. In fact, VC funds follow a power law curve — a small % of funds, generate a large % of returns. Internally, VC funds also follow a power-law curve — meaning a small % of their startup investments create a large % of their returns for LPs. This means that VC funds are in search of startups that have the opportunity to generate massive returns and “return the fund” to their LPs. As we wrote in our post on power-law curves, “This means that a small % of VC funds take home a large % of venture returns. VCs are constantly working to make their way into the “winning” part of the curve so they can continue to attract capital from limited partners. How does a VC fund become a “winner?” The best VC funds portfolio returns also follow a power-law curve. A small % of a VC fund’s investments will yield the majority of its returns. What does all of this mean for a founder?” Only a small percentage of funds create large returns, which means a majority fail. If a VC fund fails it means that its investments are also failing — or failing to generate the huge returns they need. Related resource: Understanding the Advantages and Disadvantages of Venture Capital for Startups Private Equity vs. Venture Capital Venture capital is technically a form of private equity. However, venture capital focuses on all equity and smaller investments that reward high-risk, high-reward scenarios. On the flip side, private equity firms are generally geared towards later stage companies that have a proven track record. Related Resource: Private Equity vs Venture Capital: Critical Differences Angel Investors vs. Venture Capitalists An angel investor is generally a wealthy individual who is looking to invest spare cash in an alternative investment. Unlike a VC, angel investors are not professionals nor do they have limited partners investing in them. Angel investors are typically more hands-off and can be a great source for introductions to other investors, customers, and others. Related Resource: How to Find Investors Types of Venture Capital Typical explanations of the types of venture capital divide it into three main groups, based on the business stage that needs funding. This list provides a brief explanation of these venture capital types and the various business stages that they may apply to: Related Reading: A Quick Overview on VC Fund Structure Early-stage This might include seed financing, Series A funding, etc. which is usually just a small amount of capital that will help the founders qualify for other loans. True startup financing provides enough capital to finish a service’s or product’s development. In contrast, startups might also get first-stage financing after they have finished development and need more funds to begin operating as full-scale business. For example, Crunchbase and newsletters are full of new VC deals being completed every day. You can check out Uber’s timeline of early-stage funding rounds here. Expansion This kind of venture capital helps smaller companies expand significantly. For instance, a thriving restaurant may decide it’s time to open more locations in nearby communities. Sometimes, it also comes in the form of a bridge loan for businesses that want to offer an IPO. For example, if you take a look at Uber’s timeline of investments you’ll notice they start raising massive rounds via private equity around 2015 as they gear up for an IPO. Acquisition Sometimes called buyout financing, this type of funding may help acquire other businesses or sometimes, just parts of them. For instance, some groups may use acquisition financing to buy into a particular product or concept, rather than using it for buying the entire company. Pros and Cons of Venture Funding for Startups and Small Businesses Pros of Venture Funding Venture funding comes with a number of advantages. One of the beauties of venture capital is the fact that a founder has to invest no capital of their own so they can grow at a rapid rate. No Personal Capital One of the biggest advantages of raising venture capital is that you do not have to use any of your personal capital. You can grow your company and valuation while deploying others’ capital. However, this does come with high expectations and responsibility. Investor Support As VC funds continue to innovate, the support they provide startups has continued to evolve. VC funds will help founders with anything from determining go-to-market motions to mental health to hiring & fundraising. Extensive Network The startup & VC world is a tightknit community. Many VC funds and their partners have extensive networks of other funds, founders, potential hires, and customers. Enhanced Growth VC funds allow companies to deploy millions of dollars in capital and grow at a quicker rate than they would with alternative venture funding options. Cons of Venture Funding Of course, on the flip side there are some disadvantages. While venture capital offers the opportunity to grow rapidly, it also has some downsides when it comes to ownership. Increased Dilution Raising venture capital means you are selling equity in your company. Because of this, founders will own a smaller percentage of their company. Convoluted Decision-Making Because of their diminished ownership, founders can potentially lose their ability to make decisions solely based on their needs and have to take into consideration the needs of their investors and partners. Long-Winded Time Commitment Fundraising can be an incredibly time-consuming and difficult process for many startup founders. It can take away a founder’s time from focusing on building or selling a product. If you’ve determined that venture capital may not be the best option for you there are always alternatives. Over the last few years, there has been an explosion of funding options that are founder-friendly. Check out some population options here. The Process of Getting Funded by a Venture Capital Firm At Visible we like to compare a venture capital fundraise to a B2B sales funnel. You are adding potential investors to the top of your funnel, taking meetings and nurturing them in the middle, and closing them, and onboarding them to your cap table at the bottom. Below are 6 high-level steps. If you’re interested in a more in-depth look check out our Ultimate Guide to Fundraising. Step 1: Determine if VC is Right for Your Business The first step to getting funded by a venture capital firm is to understand if venture capital is right for your business. This means that you believe you can grow at a rapid clip and generate massive returns for a VC fund to return to their LPs. Before setting out to build a list of investors, we suggest picturing what your ideal investor looks like and building out a list from there. Over the course of a fundraise, we recommend building a list of 50+ investors. It is important to keep this in mind when building a list and founding routes for introductions. Learn more about why 50-100 investors in our post here. Step 2: Prepare Your Deck, Docs, and Metrics If you believe you have what it takes to raise venture capital you need to start putting the pieces in place to get started. Going into a fundraise, you should have docs (pitch deck, financials, cap table, etc.) and your core metrics ready to go. Learn more about preparing your pitch deck and other documents here. Step 3: Find Investors Once you have your documents in place it is time to start finding investors for your business. It is important to make sure that you find investors that are right for your business. The average VC + founder relationship is 8-10 years so it is important to make sure you are starting a relationship with the right funds and person. Learn more about the ideal investor persona here. Step 4: Pitch Investors and Take Meetings Once you start reaching out to investors (cold outreach or warm introductions) you’ll start sitting meetings and have the opportunities to pitch investors. Check out our guide for meeting with and pitching investors here. If you find an investor who is ready to fund your business, awesome! You’ll move on to the following steps. For a more in-depth look at the next steps, check out our blog post here. Step 5: Due Diligence After a pitch, if an investor decides they want to move forward with an investment they will begin due diligence. You can expect an investor to audit your financials, survey your employees and customers, and deeper study the market. Great VCs will offer a checklist to help set expectations during the due diligence process. Over the course of due diligence, you will likely need to share a data room. Learn more about how you can build a data room with Visible below: Related Resource: What Should be in a Startup’s Data Room? Step 6: The Term Sheet If you make it past due diligence, you will be presented with a term sheet. If the terms look good, you are set! Learn more about navigating your term sheet here. Origins of Venture Capital In one way or another, forms of venture capital have probably financed innovations since people latched onto the idea of bartering. For instance, a plucky inventor may have come up with a better idea for a grindstone but lacked the resources to create it on his own. Another villager may have liked the idea, so he exchanged stone and labor for part ownership in the new and better-milled grain producer. Still, for much of the history of venture capital, investors favored loans over equity. In the past, investors lacked ways to gain good information about all the details of a business. Also, until fairly recently, the concept of limited liability did not exist as it does now. Investors feared that they may offer money to a company in exchange for part ownership. In exchange, they might get unpleasantly surprised by massive debts that the original founders had already piled up. As part-owners, they would also face partial responsibility for these loans. The concept of limited liability helped relieve some of these concerns and encourage more equity funding. It took until after WWII for the United States to develop a true private equity system. An investment of $70,000 in DEC in 1957 gained credit as one of the early success stories after that initial funding grew to $35 million by the IPO in 1968. The Great Recession changed the nature of venture capitalists to some degree. Most lately, venture capital groups have focused more upon offering other value, besides just funding, to the small businesses or startups they want to help fund. As mentioned above, part of the deal may include business expertise, facilities, and other helpful assets beyond money. Thus, many venture capitalists look for startups or small businesses that they understand how to fix or help, beyond those that just need investments. Working for a Venture-Backed Company How is working for a venture-backed company different from working within an established corporation? As we noted in our guide to Startup Culture, working for a startup can offer employees many of the same benefits that investing in one provides venture capital providers. Of course, employees may not initially enjoy the large salaries and perks that a large and established corporation can provide. A few perks of working at a venture-backed company over a large corporation: Ownership — the ability to own projects and individual metrics that move the company forward. Collaboration — have the opportunity to work cross-functionally with other teams and individuals Growth — quickly advance and grow your skills as the company grows. Because the company is small, employees may need to wear multiple hats, and some employees enjoy the challenge and chance to explore various facets of their company. In lieu of the highest salaries or best retirement plan, some startups also offer flexible schedules and other soft benefits that might also appeal to some very good employees. Working for a venture-backed company offers some challenges over taking a job with an established firm; however, the right startup or small business can also promise great rewards. Find out if VC is right for your company with Visible Understanding how venture capital works is an important step to determining if venture capital is right for your business. If you believe venture capital is right for your business, let us help. Find investors using Visible Connect, our free investor database, to kick off your fundraise.

In the opening episode of Season 2 of the Powderkeg podcast, Mike Preuss, our CEO, and David Hall of Rise of Rest discuss fundraising between the coasts and how startups can leverage stakeholder reporting to power their business. In this episode with David Hall and Mike Preuss, you’ll learn: Key similarities and differences between non-coastal tech hubs (9:17). An experienced investor’s high-level work and life advice for entrepreneurs (15:46). The benefits that thorough stakeholder reporting can provide for every startup (22:51). How to build a talented team and loyal customer base between the coasts (33:38). Proven strategies for nurturing healthy founder-investor relationships(37:33). How founders and investors should approach fundraising in non-coastal cities(49:16). Give it a listen below or using this link. Enjoy!

With Q3 coming to an end, it is easy to lose focus on your board and become tangled up closing deals, hitting numbers, and pushing product updates. While you’re likely weeks away from your quarterly board meeting, it is never too early to have a game plan in place. Preparing for your board meeting now will take some stress off your shoulders as you make the final push to finish the quarter strong. If planned appropriately, board meetings can be a powerful resource for both you and your investors to discuss important topics and keep your business on track for a strong fourth quarter and beyond. We’ve scoured our own notes, blog posts, and other resources to compile our favorite quotes, lessons, and tips for running a successful board meeting: Preparing for the Board Meeting You’ll find that almost every investor will point to preparation being the biggest factor in running a successful board meeting. Different investors will point to different materials, metrics, and discussion points to share in advance, but it ultimately boils down to sharing relevant data and information so your meeting can be a discussion as opposed to an “update session.” “The board deck should be sent out three or four days in advance and it should include all the important financial and operational results for the Board to consume in advance of the meeting. It should also tee up the big discussion items so that the Board can start to think about them in advance of the meeting. The Board does not need to go through a line by line review of the financial and operational results in the meeting.” – Fred Wilson, Union Square Ventures While sharing your board deck and financials in advance are important, make sure it is the correct and relevant information: “It’s really annoying to receive a monthly update or attend a board meeting and realize that the set of information and/or data isn’t relevant, accurate and mastered. No discussions should start before the entrepreneurs fixes this. It is just fruitless otherwise.” – Jean de la Brochechard, Kima Ventures Simply sending over your board packet will not be enough either. It is on you to follow-up with the board members and make sure they’ve reviewed the info and will be ready to discuss come your board meeting. Some investors suggest setting aside 1-on-1 meetings to get their advice on setting discussion points as well: “Soliciting your board member’s input on your agenda is important. But it is also really helpful to have these “one on ones” in advance of the meeting so you can update each board member on the things that they are concerned about. The board members will arrive at the meeting more prepared, they will be more comfortable, and they will also be able to help more.” – Fred Wilson, Union Square Ventures Related Resource: How to Create a Board Deck (with Template) Running the Board Meeting If you’ve properly prepared for your meeting, there should be minimal stress when it comes time to run it. It can be an incredibly valuable discussion for determining the next steps for your business and burying any issues that may be on your mind. There are endless “best practices” for running your meeting, but we have found the one below by Mark Suster to be one of the most practical: “With the limited time you have together as a group, I’d want the following ratio of time spent Provide information / context (15%) Discuss, debate and potentially reach decisions on the most important topics (70%) Deal with company admin: 409a valuations, approve stock options, vote on key measures (15%)” As a founder you’ll know the finer details of your business infinitely better than your board, so your best chances at getting the most from your board are leveraging their “helicopter view” and experience to help break down strategic decisions. “A board is not a pitch session, you don’t have to brag or sell or whatever you think will make your presentation look great. It must be an honest and clear view of the past, present and targeted future. If things are ugly, show the blood, if things are running smoothly, address strategic matters. Do not make an appearance, do not run a show, be a CEO.” – Jean de la Brochechard, Kima Ventures Your investors are already invested in your business and its success. Share what is not working well, why certain metrics might be lagging, and how they can help. Investors have likely seen other portfolio companies in the same position and can draw on personal experience to help you through “the struggle.” As John Vrionis of Unusual VC puts it; “We are all in the boat together and the only way we can help is if we know what is working and what isn’t. Intellectual honesty and transparency about the facts of our reality greatly improve our chances of success.” Following up and Gathering Feedback Once your meeting is completed the work is not done. Chances are you won’t come to conclusions for all of your issues and its important to stay on top of the discussion and keep the board engaged. There are likely other portfolio companies fighting for your investors time to hash out plans and details from their meeting too. Stay in front of your board by sending a quick recap and personalized emails to any individuals that you need help from. “People go to so many board meetings and are so busy these days that they seldom remember what was discussed / agreed. This is coupled with the fact that lawyers now routinely advise you not to put any of the substantive discussion points in the legal meeting minutes. So you should produce the set of notes that are unofficial but cover the real valuable stuff you talked about.” – Mark Suster, Upfront Ventures Following up with a quick email and recap is a good place to start. As Zach Shulman of Cayuga Ventures puts it; “The goal of the post-board meeting email is to make sure that everyone is on the same page. This is really helpful for the entire board team, including of course the CEO…The post-board meeting email should also appropriately address any issues surfaced in the final executive session as well. This is a way of reporting back to the CEO. Sometimes it is not appropriate to address all issues in this group email, particularly on points that are critical of the CEO and thus often handled one on one.” Different VCs will likely give you different feedback when it comes to structuring and running your board meeting. At the end of the day, a successful board meeting comes down to being transparent and sharing the proper information in advance. To help take a load off your shoulders, check out our board meeting packet template to keep your board in the loop before your Q3 meeting.

You just raised a round. You have the check in hand. Hiring and product updates are moving along. Now what? While bringing on a new set of investors is exciting for your business, there are critical steps to “onboarding” new investors to ensure all parties are getting the most of the new partnership. Ideally, you selected your new investors strategically and did your own due diligence through the fundraising process. As Faisal Hoque puts it, “Funding can actually kill your venture, especially when there is a major disconnect between you and your investor”. Even if you’ve chosen the right funders, it is vital to your investor relations to establish a communication strategy, build a data distribution system, and set expectations and goals. Develop a roadmap & expectations Hopefully, expectations and goals were set during the fundraising process from both sides of the table. Your expectation will likely evolve over time as your relationships and your company continue to grow. However, it is still vital to lay out any expectations, by both parties, once the check is signed. Bringing on a new VC means bringing on a new business partner. It is essential to have a clearly communicated set of goals that your investors are bought in on. Having stakeholders with different ambitions and expectations can lead to underutilizing their time, network, and experience. Clement Vouillon of Point Nine Capital offers a good starting point in the questions below: “There is no right or wrong here, but by thinking about what you need, it will be easier for you and your investors to get aligned: Do you need a “hands-on” type of relationship? Or you want to keep it very light? Are you aware of “weaknesses” in your founding team that could be filled by your investors knowledge (education) or network (hiring) Do you need industry specific knowledge or specific value add that your investors offer?” Define Metrics For an early stage company, you will most likely need to set what metrics you are tracking and distributing. The most important thing here is sharing your metrics/data on a recurring basis and allowing your investors to “connect the dots.” What metrics you are tracking will depend on your business, market, vertical, etc. If you’re looking for a place to start, we suggest the “16 Startup Metrics” from a16z and “How to Steal the Right Growth Metrics for Your Startup.” “Ultimately, though, good metrics aren’t about raising money from VCs — they’re about running the business in a way where founders know how and why certain things are working (or not) … and can address or adjust accordingly.” – the team at a16z Data Distribution and Communication Organization is key when it comes to managing your investor relations. After you raise your round, one of the first questions you should ask is, “how am I going to communicate and interact with my investors?”. While building a rapport is ultimately dictated by the stakeholders involved, we generally find the following structure to be most popular and work for many founders and VCs: Board Meetings Chances are, this will be the main line of communication you have with your investors and board members. There are countless resources, templates, and guidelines for running a board meeting but we suggest checking out “How to Make Board Meetings Suck Less” if you’re looking for a place to start. Monthly Updates “The most effective CEOs that I’ve observed send regular, short, board update emails every few weeks or monthly just to give the board a sense of what is going on. Of course it’s not required and many don’t do it. But I find that the more informed your board is and the more you’re staying on their radar screen the more effective they’ll be for you.” – Mark Suster While the internet is flooded with content and resources for “investor reports” many founders still don’t do it. To make the most of your new investors and board members, turn your monthly updates into a habit and slowly tailor the format, content, and frequency to the likings of all parties. Check out this example of a monthly report to get the ball rolling. Conference Calls These are best used to supplement a monthly email or update. Instead of exchanging emails back and forth, quickly jump on a call to go over financials, product updates, roadmap, etc. Be sure to set a clear agenda so you don’t lose control over your meeting. One-on-one Calls/Meetings All of your investors will bring a different set of skills and resources to the table. If you have a specific asks for hiring, intros, strategy, etc. don’t be afraid to tap into your investor’s network and hop on a one-on-one call. An engaged investor can be key to taking your business to the next level. By developing a cadence with your investors you can easily tap into their network to help with hiring, fundraising, and closing deals. Want to start your investor relations off on the right foot? Sign-up for a free Visible trial here to make the most of your new partnership. Search for your next investor with Visible Connect:

Investors are more than a source of capital. They have experience, advice, and networks you can leverage. It’s normal to feel intimidated by the people who just handed over a check, but it is vital for both parties that you tap into their knowledge to build a strong business. As soon as you take on capital, you are expected to work toward generating returns for your investors. On the flip side, an engaged investor can add value to your business in order to help generate those returns. That said, you are likely not their only investment, so you need to show them you value their time by only asking important, specific questions. When asked about the most important section of his investor updates, R.J. Talyor, Founder & CEO of Pattern89, said “In the Visible Update template I use, there’s a specific section named ‘Where I need help,’ where I list the 2-3 places that Quantifi needs new thought/idea/feedback on what we might do next. I always get responses from this section—introductions to potential customers, books/resources I should consider, or a quick phone call to talk through the area I’ve outlined.” So what’s appropriate to ask your investors? And how do you do it? You’ll find most asks go back to their experience and network. How to Ask Investors to Help With Closing Deals 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 investors 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. Don’t make the mistake of asking for help on a deal once it’s too late. As Paul Arnold from Switch Ventures, puts it, “A surprising number of founders only want to update investors once they’ve closed deals. They worry that they’ll look bad or weak or behind if they share leads that don’t convert. This is a bad approach. Your investors have the experience to know that not all leads will end in a deal”. How to Ask Investors to Help With Hiring Attracting talent is one of—if not the—most important resources businesses compete for on a daily basis. Using your investor network is a great place to start when searching for a new role. While they are often best suited to help fill senior positions, be sure to ask your investors for help when recruiting for any open position. Be sure to 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. If you have a larger firm backing you, theres a chance they have an internal talent pool from which to pull qualified candidates. How to Ask Investors to Help with Fundraising Investors know other investors. Even if your investors are not interested in committing follow-on capital, they may be able to introduce you to other investors they know. Just as you should with making hiring and deal ask be sure to be as specific as possible, even giving your investors the name of the firm and partner you’d like to meet when possible. If you’re struggling to find specific investors, it is okay to ask if they know anyone in their network that might be a good fit. Whether asking for help to close deals, hire, or fundraise, your best bet when going to investors for help is to communicate clearly and often. Speaking up only when you need help isn’t likely to get you the results you’re looking for. Remember to reverse the relationship, too—help promote an event, send deal flow, and help other companies in your investors’ portfolios. Lastly, don’t forget to publicly thank your investors when they go above and beyond. Leveraging your investors is low-hanging fruit for moving the needle. Don’t leave your investors in the dark; send regular updates so you can make the most of your partnership.

A post by Brock Benefiel. Brock is a Digital Marketing Consultant, Tech Writer, and Author of the upcoming book Flyover Startups. Recent high-profile tech controversies have put ethics under the microscope. What role do investors play in a company’s values and how do you fill your boardroom with people on your side? As a founder, you own the values of your business. You may not own all the shares of the company but the ethics and guidelines that govern your startup will always be your responsibility. You’ve got to protect what you’ve created so it’s necessary to do what you can to assert your control. This can cause some real headaches if you’re forced to grapple ethical dilemmas with difficult investors. Founders may find themselves with financial backers that are eager to buy-in to a company for its products or services but later seem easy to dismiss your values. That’s a problem. A founder serves as the ultimate arbiter between the needs of the customers, employees, executive team and the board. The moral framework they construct for guiding their business is often a valuable structure for producing the best possible company to serve everyone’s needs. On the hand, if they are tempted to make unreasonable short-term ethical concessions for a quick surge that sacrifice a long-term vision for growth, everyone is vulnerable to lose in the end. There is real pressure on founders to be unethical “Startups are desperate,” Sean Ellis, CEO of collaboration software startup GrowthHackers, told Fortune. “[Mature] companies aren’t going to die if they don’t figure out how to accelerate growth. Most startups will die, and when you’re desperate, you’ll do stupid things.” There’s no shortage of news (see Theranos, Zenefits, Hampton Creek) of young companies fudging numbers, falsifying product details and generally doing stupid things. Reputations have been wrecked, businesses cratered and the opportunity to accomplish great change have been squandered by these shortsighted snafus. But any venture requires even honest tech founders to be irrationally ambitious. Getting investors to dole out money now requires convincing them to buy into a future founders can never be sure will ever exist. Then those checks cash and the pressure to show growth quickly and turn that vision into something tangible soon intensifies. But real, sustainable growth is hard and cutting corners can be easy and attractive – especially when the stakes are high. If you’re a founder that lacks a rigid moral framework for how you conduct business, you’re likely to choose the initial path of least resistance that gets your startup moving quickly. It’s also the course that can later lead you to hitting the wall and going down in flames. Venture capital dollars don’t optimize for ethics either VCs face pressure too. They need at least one massive hit out of their profile and have less time for your business and if you’re unlikely to earn it for them. Founders often expect their investors to also serve as mentors. But if your backers are picking up a pen, it’s to write a check not draft your company’s value statement. This quote from Fred Destin nails the limits of venture capital as a moral authority for your startup: “Venture capital as a funding product is not immoral as much as it is amoral — it rushes in to leverage any opportunity that arises,” Destin wrote recently in Medium. “The individual themselves are mostly (in my experience) of high integrity and have a clear moral compass, but I don’t think many venture partnerships stop to think : “why are we funding this team and can we embrace the mission of this company.” Let’s face it: the focus of VCs is fetching a 10x return on their investment. Anything else is a bonus for founders. Set expectations early But investors should be asking the “why” questions of your business. It’s remarkably short-sighted to sign a term-sheet and shell funds into a company without a clear understanding of what the company values. You can’t control what they choose to ignore. But you do command their attention in pitch meetings and you can emphasize from the jump how your ethics will guide your business. “You need to be upfront about your values,” Brad Burnham of Union Square Ventures said about founders. “You need to implement your values in your system.” State it explicitly and explain to investors exactly what they are signing on to beyond the term sheet. Then, if problems arise later, you’ve already set the precedent and make the investors choose to be the problem. The burden will be on them to explain to you and the rest of the board why they’ve done it. You offer a lot upfront – so ask a lot upfront Pitching investors is a trust exercise all of its own. You’re almost always sharing proprietary information in an investment deck and almost never securing a NDA to prevent potential VC vultures from flying away with your secrets. If you’re willing to easily hand over precious data points and secret product information, you’ve earned the right to demand investors take your code of ethics seriously. Investors have expectations of you too Younger CEOs and first-time founders are especially vulnerable to an extra bit of skittishness to appear disruptive or cause unnecessary board drama. You’re entering a boardroom with investors that have likely worked with multiple founders and you might even outnumbered by VCs in the room. Address concerns that may not immediately impact growth in front of a group focused on earning a return can be awkward. But it’s good and fair to establish early that you have expectations of your investors, especially when they’ll certainly have expectations of you. Ask investors for their code of ethics Same as founders, good VCs consider the culture they want to create within their firm and consider how it guides their decision to invest. Some have even argued for a kind of Hippocratic Oath for VCs to take. An investor who hasn’t already spent time weighing moral decisions and etching out an ethical framework for acceptable and unacceptable practices will be surprised when challenged by founders down the road. Same as founders, it’ll be hard to expect a move toward the moral decision over the quick growth compromise. Ask your investors upfront for their guidelines. In absence of something written, ask them direct questions about why they pick the startups they do and what they value. They might not be prepared to deliver long, well-considered answers. But even that can reveal a lot. So you’ve vetted investors well and delivered your point-of-view upfront, but yet problems still arise. What do you do? Keep the board behind you VCs are human too and when the pressure is on, can be vulnerable to advocate for unethical shortcuts. You’ll have to address it with the individual causing the problem immediately – part of good investor communication is telling VCs when they are wrong. If you reach an impasse with the troublesome investor, you’ve got a problem that needs to be solved with the entire board involved. If you feel your company is about to behave unethically, it’s time to rally the other investors (and the votes) behind you and pressure the problematic VC to back down. Do it out in the open in board meetings or do it behind closed doors. Honestly, it doesn’t matter if you’re airing the issues out in front of everyone or pressing VCs for loyalty pledges in one-on-ones. Investors are there to have your back and if they don’t back you on these conflicts, they are skirting their duty. Implicit pressure can be unethical An investor might act unethically by asking you to engage in a task or behavior that you deem unethical. But your board can also be guilty of implicit abuse of your code of conduct. You can’t acquire new customers, boost revenue growth or makeover your product offering at the expense of your company guidelines. You don’t want to deploy shady tactics to show artificial sales spikes or to fudge timelines of when enterprise features will be implemented just to win now. However, if you don’t have a group of investors that respects the limitations of your current growth or brings sound solutions to the table that empower you to step beyond your boundaries, you have a group of people who unnecessarily pressuring the person in charge. That might not be as sinister as suggesting immoral actions, but it can lead a founder down the wrong path all the same. You don’t want these people as your advisors. So, to return to the question asked up top, do you need investors to match your values? Yes – at least as it relates to the core tenants of your business. It’s not that complicated. Keep it clear early what you value and why it matters. And if it gets complicated, keep it simple with your current investors (at least the ones that will get it) to ensure everyone stays on the same page.

QuickBooks Report Template In the words of Tomasz Tunguz, Partner at Redpoint Ventures, “Financial statements are the Rosetta Stone for a business. They are the most succinct way of communicating how a business operates to management teams and boards, who weigh the trade-offs of different investments”. Distributing your financials to your team, investors, and board is vital to staying on top of your operations and uncovers insights for bringing a new product or service to market. Using our Quickbooks data source, we put together an Update template that will allow you to easily visualize and distribute your key financial and operational data. Currently, our Quickbooks integration allows you to pull in the following metrics: Cash Customers Employees Expenses Months Runway Net Change in Cash Net Income Payables Receivables Revenue Check Out the Template Here >>> When sending a financial and operational Update it is important to make sure the information is understandable, relevant, reliable, and comparable. Many team members, investors, etc. are likely not concerned about granular data points but rather that they are moving in the right direction and are efficient as possible. Instead of overwhelming stakeholders with spreadsheets and complicated metrics, we’ve often found that it is most useful to send over a few charts with a quick narrative around what is working/not working/etc. For those looking to take it to the next level, it can be useful to include benchmarks and trends in the industry to show how certain metrics and financials are comparing to the industry as whole. The template is broken down into 3 major components; Operational Overview, Expense Overview, and Other Notes. Keep in mind the financials you are tracking and sharing may change depending on the stage of your company; revenue is obviously not as important for a pre-revenue, early stage company. For our example, this includes revenue, cash position, and a high-level look at company expenses.

The Race to a Trillion Dollar Market Cap Between the unofficial race to the first one trillion dollar company and the recent acquisition of GitHub we decided it would be an interesting time to look at Microsoft’s most recent shareholder letter. Recently passing Google’s market cap for the first time in 3 years their acquisitions and focus on “the cloud” (doesn’t hurt to purchase the company behind the largest repository of open source software) have proved to be a large factor in their push to $1T. All of the charts, images, quotes, and emphasis below were added by us. Note: there may be removed sections of portions of the letter below. You can find the original 2017 Microsoft Shareholder Letter here. PROGRESS AND OUR RESULTS We delivered $90.0 billion in revenue and $22.3 billion in operating income this past fiscal year. Adjusting for Windows 10 revenue deferrals and restructuring expenses, revenue was $96.7 billion with $29.3 billion in operating income. According to Morgan Stanley analyst, Microsoft will need to grow their revenue by 46% to $136B and net income to $46B to reach the trillion dollar threshold by 2020. We continued to invest in innovation and expand our market opportunities, while maintaining our commitment to shareholder return, which included total cash return of $22.3 billion this year. Our commercial cloud annualized revenue run rate ended the year exceeding $18.9 billion, up more than 56 percent year-over-year. Our cloud growth puts us squarely on track to reach the goal we set a little over two years ago of $20 billion in commercial cloud annualized revenue run rate in fiscal 2018. “With Public Cloud adoption expected to grow from 21% of workloads today to 44% in the next three years, Microsoft looks poised to maintain a dominant position in a public cloud market we expect to more than double in size to (more than) $250 billion dollars.” – Morgan Stanley Analyst Microsoft is doubling down on their cloud efforts and are expecting for strong growth with corporate usage for Office 365 and Azure. The strength of our results across our reporting segments reflects our accelerating innovation as well as increased customer usage and engagement across our businesses More than 100 million people use Office 365 commercial. More than 27 million consumers use Office 365 Home & Personal across devices. More than 53 million members are active on Xbox Live. More than 500 million LinkedIn members use the LinkedIn network. Windows 10 is active on more than 500 million devices around the world. Dynamics 365 customers grew more than 40 percent year-over-year. Azure compute usage more than doubled year-over-year. As of June 14, 2018 the market cap for each company is… Microsoft – $783B Apple – $946B Amazon – $832 Google – $806B LOOKING FORWARD: OUR EXPANSIVE OPPORTUNITY A new technology paradigm As you can begin to see in the examples above, a new technology paradigm is emerging, one with an intelligent cloud and an intelligent edge. Microsoft will lead this new era. There are three characteristics that define this shift. The first is that the experience layer is becoming multidevice and multisense, where a person’s experience with technology will span a multitude of devices and become increasingly more natural and multisensory with voice, ink, gestures and gaze interactions. Second, artificial intelligence (AI) will be pervasive across devices, apps and infrastructure to drive insights and act on your behalf. Third, computing will be more distributed than ever before with compute power at the edge, whether it’s the connected car, the connected factory floor or any connected device. As developers write new applications for this paradigm, they need new mechanisms to manage the complexity of distributed, event-driven computing. Microsoft made a big splash with their recent $7.5B acquisition of GitHub. The acquisition stays in line with Satya Nadella’s focus on the cloud and open source projects. GitHub has already had a large presence in enterprise sales with GitHub enterprise and will be able to tap into Microsoft’s massive enterprise customer base. With the continued growth of public cloud usage Microsoft is looking to grow their strong position in the space. With this new paradigm comes new opportunity. Every customer is looking for both innovative technology to drive new growth and a strategic partner that can help them build their own digital capability. Customers are looking to change how they use digital technology and to reimagine how they empower their employees, engage customers, optimize their operations, and change the very core of their products and services. They are building their own digital systems of intelligence to drive growth. Microsoft is uniquely positioned to capitalize on this opportunity with the combination of our technology, partner ecosystem and culture of growth mindset. As we look ahead to fiscal 2018 and beyond, we will focus on bringing our technology and products together into experiences and solutions that deliver new value for our customers. Going forward, we will focus our innovation and investments in areas where we see the greatest opportunity for growth. The modern workplace The workplace itself is transforming — from changing employee expectations, a widening skills gap, more diverse and globally distributed teams, to an increasingly complex threat environment. The productivity experiences and tools we deliver will unlock the creator in all of us and enable seamless teamwork not just in the workplace, but also at school and at home across all the devices people use — from the phone to the laptop to mixed-reality headsets to the whiteboard. The Microsoft Graph, which provides the underlying data model of the user’s experience, and the LinkedIn network, will make it possible for every professional in any business or functional role to be much more productive in getting things done. Enter Office 365, Windows 10, and LinkedIn. Office 365 currently has 100 million users and is expected to double to 200 million by 2020 on top of LinkedIns already 500m users. Applications and infrastructure Cloud computing is foundational to enabling digital transformation for any organization. Beyond being a trusted, global, hyper-scale cloud, what makes Azure unique is our hybrid consistency, developer productivity and SaaS application integration. Our hybrid infrastructure consistency spans identity, data, compute, management and security, helping to support the real-world needs and evolving regulatory requirements of commercial customers and enterprise-focused SaaS ISVs. Azure Stack is an extension of Azure that enables developers to build and deploy applications the same way whether they run on the intelligent cloud or the intelligent edge. With Visual Studio and Azure Services, we provide the toolchain and application platform for modern DevOps that helps organizations with their agility and productivity — and enable them to use the best of the Windows ecosystem and the best of the Linux ecosystem together. Azure enables SaaS ISV developers to reach 100 million plus enterprise users through the integration of Azure Active Directory and Office 365, and by embedding Power BI, Power Apps and Flow as part of their applications, enables customers to have consistent identity, developer extensibility and security across their application portfolio spanning their own custom applications and SaaS applications. Microsoft has doubled down on their cloud investment and are going after Amazon and Google’s cloud services as the market continues to grow. While AWS still has a commanding percentage of the enterprise cloud market Azure has been rapidly chipping away at Amazon’s lead. Azure went from 34% to 45% of the market while AWS still grew from 57% to 64%. The data above comes from a survey by TechRepublic of 1000 technical professionals. Gaming The $100 billion plus gaming industry is experiencing massive growth and transformation, and we have an expansive opportunity as we think about gaming end-to-end — from the way games are created and distributed to how they are played and viewed. We will build on our strong foundation of connected gaming assets across PC, console, mobile and work to grow and engage the 53 million strong Xbox Live member network more deeply and frequently — from great game experiences to streaming to social to mixed reality. We will be the company for gamers to play the games they want, with the people they want, on the devices they want. I’m excited about our opportunity to accelerate our growth opportunity, innovate boldly and earn new fans. Microsoft has been on an acquisition spree in the gaming market. On June 10, Microsoft announced the acquisition of 4 game studios as they continue to innovate and grow their gaming business. Microsoft’s continued investment in Xbox, AI, and live streaming video games have the opportunity to be a large part of their Azure Cloud business.

Howard Schultz recently announced that he will be stepping down as executive chairman of Starbucks; exactly 26 years after their initial public offering. In 26 years as a public company, Howard helped transform Starbucks from a small coffee chain into a global brand with over 27,000 locations. In our newest investor letter, we can take a look at the 1992 Starbucks Shareholder Letter; their first as a publicly traded company. With no mentions of mobile ordering, international expansion, or Unicorn Frappuccinos it is remarkable to see the growth that Starbucks experienced with Howard Schultz at the helm. Expanding from 154 to 27,000+ locations two things have stayed true throughout; Starbuck’s commitment to their people and their coffee. All of the charts, images, quotes, and emphasis below were added by us. You can find the original 1992 Starbucks Shareholder Letter here. The 1992 Starbucks Shareholder Letter TO OUR SHAREHOLDERS: Every successful business has its competitive advantage. At Starbucks we have two: Our coffee and our people. Since our inception in 1971, Starbucks has been based on an unrelenting (some would say fanatical) devotion to providing its customers with the best possible cup of coffee. In Howard’s last shareholder letter (2016) this still rings true. Starbucks has continued to double down on enhancing the lives of their “partners” and the communities where they live and work. One indicator of this passionate commitment is the question we ask ourselves whenever we assess our efforts: are they as good as the coffee? Our retail stores are intended to be environments worthy of housing the finest coffees which nature and skilled human labor can provide. Dedication to quality, in the cup, is what Starbucks is all about. At the time of their IPO Starbucks was doing ~100,000 transactions at their retail stores a week. As of 2016? 85M+ transactions a week across their retail stores. In addition to their focus on people, Starbucks has scaled their transactions while staying true to their focus on quality coffee. Below is an excerpt from Howard’s letter to partners announcing his departure: “Sourcing and roasting the highest quality arabica coffee will always be our heritage. Never stop reaffirming Starbucks leadership position in all things coffee. I can think of no better expression of this than our Reserve stores.” A look inside the experimental Starbucks Reserve in Chicago. Many of the specifics that make our company seem unique to others are, to our way of thinking, simply natural, even inevitable, consequences of this core attitude and aspiration. Quality coffees are grown, roasted, brewed, by quality people, and the welfare of the people, the planet and product are inextricably linked. Our “employees” are called partners, and this is literally true, since every individual is offered stock options. We seek to seamlessly interweave variables that ensure quality for the customer with literal ownership in the company. We want to be the employer of choice in each market in which we do business. In order to achieve this goal we pay fairly, provide benefits to all whether part-time or full-time, and encourage individuality and open communication. Our environmental commitment begins with recycling and conserving wherever possible. We donate coffee locally in every market, providing homeless shelters and hospices better coffee for free than many of our competitors offer at full price. We are also entering our second year as the West Coast’s largest corporate donor to CARE, the international aid and development organization. Starbucks, together with its customers, funds CARE programs in the coffee producing countries of Indonesia, Kenya and Guatemala, with an emphasis on disease prevention and increased literacy for children. This year has been an exceptionally rewarding one. We achieved sales of $93,078,000 which were up 61.5% from 1991. We opened 53 new stores, including ones in our newest markets of San Diego, San Francisco and Denver. To no surprise, Starbucks has not been able to sustain their growth rate after raising $25M+ from their IPO but have continued to grow store locations at a steady rate. In 2017 more brick-and-mortar stores closed since the start of the “Great Recession” (2007), yet Starbucks added 2,250 net new store locations over the course of the year. The commitment to their people, coffee, and culture has continued to resonate with customers around the world. Also, we earned $4,104,000 after tax which represented a 70.4% increases versus a year ago. Lastly, Starbucks’ entrance into the world of publicly-owned companies this June was profoundly significant, both within the company and for the specialty coffee industry as a whole. It is an affirmation of our leadership position, but it is first and foremost a powerful demonstration of what can result from the joining together of great people and great coffee. Howard Schultz chairman, president, and chief executive officer