“In the midst of chaos, there is also opportunity.” — Sun Tzu The landscape of founders, investors, VCs, consumer activity, and the world as a whole has been altered and…
Why you Should Rank Your Investors
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…
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.
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.