how to: efficient investor reporting

Dos & Don’ts for efficient investor reporting

Eva Harmeling Content Creator
  • Eva Harmeling
  • 07.03.22
  • 8 min read

Of course, investor reporting is very individual and, above all, depends on the business model of the start-up in question. Nevertheless, we would like to share a few general tips that Sebastian Bärhold, investor and co-founder of IDnow, told us in an interview with finway.

Dos & Don’ts: This is how efficient investor reporting works

The most important question: What do you want to share with investors?

The question of whether to disclose all figures and developments in investor reporting or whether to integrate only what is specifically requested in the reporting is not only a question of taste. To a certain extent, the scope is also a question of strategy. Often, the content of an investor reporting is coordinated with the investors themselves – in other words, a joint decision is made as to which key data and KPIs should be included and which format makes sense.

If you ask Sebastian Bärhold, it is important to present the business as transparently as possible from the beginning, so not to conceal anything. This means: show all costs well, do not make margins look good, etc. Detailed investor reporting ultimately creates trust and paints a realistic picture – not only for investors but yourself – of how the start-up is currently doing. Only in this way can the reporting become an important basis for further financing discussions and rounds.

By default, an income statement is an integral part of investor reporting. Ideally, the income statement is supplemented by the balance sheet and cashflow. These financial figures are then supplemented by operational KPIs that describe the business, such as transaction figures or new customers. The integration of relevant KPIs as important drivers of the start-up shows investors that you have understood your own business.

What should be considered regarding the format of investor reporting?

In order to make investor reporting really efficient, it should be designed in such a way that investors can get started quickly and ideally do not have to ask any questions in order to get a full overview of the situation of the start-up. For this purpose, KPIs should be continuously reported.

This is an essential point to consider for the operating statement, for example: For investor reporting, it makes sense to map a target/actual comparison not only to the month, but also to the current year, in order to create a reference value for investors. In the first few years, the data may differ considerably, however both are very important as a reference value. It may also be possible to use the figures of the previous year as a reference value, but a comparison with the plan figures is important in any case.

With the operating figures, but also with the financial figures, the time series over the months should always be shown (further down) in the reporting – the investor reporting therefore not only needs an overview of the respective month, but should give investors the opportunity to see a development.

Often forgotten: a meaningful cash planning or forecast.

“For this, I divide the cash balance by the current burn rate – which, however, can change massively. This can mean that I no longer have a 12-month runway, but suddenly only six. At this point, a financing round would be needed immediately,” explains Sebastian Bärhold. Therefore, you should start reporting the cashflow as early as possible. Cash planning and cash actuals should always be taken into account and modeled for the coming months. Only then will you be able to analyze all the key financial figures correctly.

5 ingredients for a good investor reporting

  1. Keep it short and simple: Investor reporting should cover as much as necessary without overwhelming investors. The main objective is to illustrate developments and business events. The content of the reporting should be quick to pick up, rather than overwhelm investors with figures and data.
  2. The form is usually determined together with the investors. This should be adhered to continuously so that everyone can find their way around the data. Whether Excel, PowerPoint or PDF is a matter of taste.
  3. The KPIs should be chosen sensibly so that they reflect the development of the start-up well. Depending on the industry and business model, you should orient yourself to the common sizes and key figures. The rule here is: focus instead of arbitrariness.
  4. In addition to the KPIs, there is also room in the investor reporting to express wishes to the respective investors. After the hard facts have been listed, you can ask for concrete support. However, the work should be made as easy as possible for the investors (e.g., prepare the content of a social media post ahead when it comes to sharing a job posting).
  5. Finally, important events in the start-up can be listed, both positive and negative. There would also be space here to list where investors have already helped – and with what results. This trick can account to the “fomo” (fear of missing out) of the rest of the investors, who ideally want to increase their own commitment.

Must-haves for investor reporting: What do you track and which KPIs are relevant?

Of course, the relevant KPIs differ from industry to industry. Must-haves that belong in every investor reporting are the financial KPIs: i.e. the income statement, cashflows and balance sheet, which you prepare as part of the calculation of cashflows. This so-called integrated financial planning model is universal and may find a place in every investor reporting. A target/actual comparison against the budget is also a must-have in reporting.

These operational metrics can be integrated into investor reporting:

  • MRR
  • Customer Acquisition Cost
  • Transaction numbers (using IDnow as an example, who offer AI-powered identity verification of customers: how many identifications per month?)
  • Cost centers

An example for operational KPIs based on a SaaS company could be the MRR (Monthly Recurring Revenue), both in total and in different nuances of realized revenues (e.g. share of new growth MRR, expansion MRR, contraction / churn MRR).

Bookings could also serve as a KPI within a SaaS company: How much new business did I sign in a month? What new contracts have been signed and what is more on the outlook? This distinction is important, because it may well be that, due to go-lives or technical integrations, the contract and therefore revenues start with a certain time lag. Thus it is also important to look at what the respective bookings are and what orders are still in the backlog.

The listing of customer acquisition costs can also be useful in investor reporting; after all, start-ups and scale-ups are designed for growth and customer acquisition is therefore an important component. “A breakdown by acquisition channel can also make sense, especially if you are going heavily online as much as offline. Here, you can ask yourself the question: Am I acquiring high-margin customers with the channels? How quickly do marketing and sales investments translate into revenue? And how long do I need from initial contact to closing and from closing to revenue recognition?”, lists Sebastian Bärhold in our interview.

This is a reference that is ultimately also needed again and again in business planning in order to be able to plan ahead sensibly. This also gives investors a good overview of how exactly the business is working. Reporting on a monthly basis makes sense here.

Finally, a categorization according to cost centers can also be part of an efficient and meaningful investor reporting. This is an administrative effort, especially for small companies, but essential to be able to calculate certain KPIs in a short period of time. To do this, you start with sales and ask yourself what the variable and attributable costs are. These are then divided into marketing/sales, product/development and administrative overhead. Cost centers are particularly meaningful when it comes to quickly finding out where companies invest their money. Here again, a picture of the start-up can be drawn, which in turn is important for investors: Is the company product-driven? Or do two euro of marketing costs have to be reported for every euro of sales?

Conclusion on investor reporting

As already mentioned at the beginning, investor reporting is very individual. Key figures can vary with the business model and industry, but also with the strategy pursued. As soon as you have defined KPIs and format with the investors, you should provide as much information about the company in the reporting as possible. Transparency helps all parties to build trust in the start-up and to understand the characteristics of the business. In principle, monthly reporting is recommended – also so that you can always keep track of business figures and the development of cashflow and burn rate.

Want to watch Sebastian Bärhold’s webinar on “Efficient investor reporting” in full length? You can access it on-demand (in German language) here.