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Startups need funding to grow at a speed that they want. This funding usually comes in the form of venture capital which is raised from VC firms, angel investors and other programs in exchange for equity.
Funding for African startups has been growing steadily. In 2016, African startups raised just $130m according to Partech. But by 2022, the funding had risen to $3.33bn as per Disrupt Africa which represents a growth rate of over 2000% within a seven-year period.
But with funding, comes investor communications. As per Wimbart’s Startup Performance Reporting in Africa, only 71% of investors said they received consistent periodic Investment reports from startups in their portfolio despite the majority of investors (average rating of 9.3 out of 10) considering the frequent updates a priority.
Investor communications, as per the report, is the process of exchanging information between a startup and its investors. It is vital for building a trusting relationship between the startup and its investors. The effectiveness of the investor updates is key in deciding follow-on funding from the investor side with 71.4% of the investors not keen on investing more capital into a startup with poor communication.
Of all the investors surveyed, 64.7% preferred to receive the updates monthly, followed by quarterly 29.4% and just 5.9% preferred bi-monthly. However, no investors surveyed preferred annually or bi-annually which shows that investors want to receive the updates on a regular basis instead of waiting to receive the updates over a long period in one go.
When it comes to the updates, the most important performance metrics include Financial, Operational and sustainability KPIs and it is important for the investors to see a clear link between the performance indicators, strategic goals and overall business objectives.
However, the challenges investors have faced are the absence of actionable insights, selective reporting and inconsistent reporting timelines from the founders. Founders have a tendency to “cherrypick KPIs to hype a narrative” which makes transparency difficult. It is crucial for the founders to share their achievements and struggles openly.
The majority of investors prefer to receive their updates through email (76.5%), while documented reports (pdf/ppt/doc format) are also openly accepted. A few investors (most likely those with fewer startups in their portfolio) do not mind in-person meetings whether physical or online.
As a way forward, to have effective investor communications, startups should prioritise standardizing a format, sharing relevant KPIs, being consistent and keeping the updates short with a focus on the fundamentals.
You can read the full report here.