According to a new report by PR firm Wimbart, investors want more frequent reporting from their portfolio startups, but 12% of the startups worry about data confidentiality.
Unlike publicly listed companies, privately held companies are not legally obligated to report on their business performance. However, venture capitalists report a need to be kept in the loop on the performance of portfolio startups.
Wimbart’s survey of investors in 2023 revealed that only 70.8% of investors regularly received updates from portfolio companies. That number has shot up to 89% in 2024. Similarly, 71% of investors in the 2023 report shared they were unlikely to consider follow-on investing in portfolio companies that failed to provide regular updates.
Investor reporting is becoming more important
Given the further decline in funding going to African startups, it is perhaps unsurprising that more startup founders are engaging existing investors regularly. Although there’s a clear appreciation of the benefit of investor reporting, only 72% of investors surveyed intensified reporting requirements over the last 18 months.
Those who did not cite confidence in the existing reporting framework of portfolio companies as a major reason. Investors that intensified portfolio reporting requirements listed concerns about financial sustainability, the need for greater transparency, and enhanced performance reporting as their primary motives.
Other reasons include demand from limited partners, increased regulatory requirements, and market volatility. The value of frequent investor updates extends beyond Africa.
According to Visible, founders that regularly update their investors are 3x more likely to raise follow-on funding from existing investors. Investors are not alone in their belief that sharing updates is vital, with 93.9% of surveyed founders agreeing on its benefits. However, a divergence of opinions emerges at this point.
Only 42.4% of the founders surveyed believe their investors have a good enough understanding of their business and market to value their reporting. 39.4% reported only some of their investors did, while 18.2% responded negatively.
Despite an understanding that investors can unlock more value for their business if they’re aware of the business’ status — 60% say they have received support from an investor as a result of their result — some remain wary of sharing updates with investors.
Most investors shared that they did not have the full picture of the health of portfolio companies, limiting their ability to offer help. They are also holding back on providing feedback due to a number of reasons; 27.8% cite a lack of focus in the reports shared by startups, and 22.2% worry about appearing overbearing.
Meanwhile, 16.7% point to a lack of action/accountability from founders. Curiously, a minority failed to provide feedback because of the time and effort required.
Shifting priorities
There’s a mismatch between what investors expect and what founders want to share. In 2023, financial reporting was the most important metric for investors, but in 2024, it has been relegated to second place behind sustainability. Other valuable metrics include operational and future objectives.
Founders, on the other hand, report that they would like to report operational metrics such as customer acquisition costs, lifetime value, customer acquisition cost, and churn rate. As the report suggests, aligning reporting frameworks is critical. Therefore, standardised templates and mutual understanding between founders and investors will help streamline the process and put all parties on the same page.
