Let me skip the preamble and just come out and say it: most startups suck at reporting. And by reporting, I mean updating investors like us.
Left to their own devices, most founders I know would prefer to spend 100% of their time building product, pausing only to acknowledge the presence of a potential investor or customer. Ask them for a product plan, financials, a cap table, a staffing plan, financial model, legal documents or any kind... and you are asking, 90%+ of the time, to be kept waiting, sometimes forever, for a document that will almost certainly contain errors.
This issue - and a general weariness associated with dealing with an over-abundance of charm and an underwhelming amount of data - bugged me and my partners at Hatcher so much that we decided to come up with a solution. And after three years of building and several tries at it, I'm pleased to announce that we're there. Think of it as a self-learning data gathering and collation system. Like the FICO score, it's built on a thousand points with a positive threshold somewhere around 640. We call it the DART score:
- What do we know about your startup?
- How comprehensive is our understanding?
- How accurate is your budgeting?
- Do you regularly hit your sales/user acquisition targets?
- Are you the slowest responder of your cohort each month?
- How long does it take you and your team to complete basic tasks?
- When you fill out a data request from an investor, how much information do you provide?
- Do you skip important questions?
Big deal, I hear you say - so you have created the basis for a score. Why will founders treat this system with any more respect than those tattered Excel spreadsheets we've been pushing at them for the past decade or so?
Here's the answer: the Hatcher Stack reporting system uses gamification. We've turned the fundraising application process and KPI reporting into a high-stakes competition, where the prize is not just respect from incoming investors, but potentially millions of dollars in investment and several essential future partnerships. Here's how it works:
When a company first contacts us, data is scored on the basis of answers to one of several customizable templates used by the Hatcher system - the most fundamental of which is the application submission form., and the most comprehensive of which consists of our monthly KPI actual/budget reporting system. That's right - every month, at the same precise time, an update request is sent each portfolio company founder. What happens if you don't fill in this data... or you wait too long? Well, there might be consequences...
Let's imagine you're an accelerator - and you have established the practice whereby each portfolio company's DART CHART is shared with every investor on Demo Day. Now imagine that you're startup #3 on the line-up, and you are the company with the thinnest data profile of any company in the accelerator portfolio - and you never fill out every question asked. You're the last to respond to requests for information, three months running... and you have failed to accurately forecast every single one of your milestones - revenue, burn, cash position, user traction, staffing, and development milestones.
Do you really think any sophisticated investor will be interested in investing in the laziest company in the portfolio? I don't think so either.
In my experience, the guys that are most interested in reporting to investors are the guys that will most likely respect their targets, figure out an executable plan, and guide their companies to a well-thought-out exit. These are the guys that we should be investing in. It's time to get real on reporting, and start building comprehensive, accurate, complete data profiles from a startup's very first interaction with an investor.
Note: the image included above is an image from an actual company. Their DD score tells us there is a lot of potential there - but their dismal reporting track record, lack of accuracy, and woeful score re transparency says very clearly: avoid this opportunity. Or make sure you add a very experienced second-in-command. :-)
Note to Accelerators: The Hatcher Stack is free for use by investors. If you want a better reporting and data management system, all you need to do is sign up, or contact someone on the Hatcher team.
John is a serial entrepreneur and investor, and the co-founding Partner of Hatcher+, a data-driven, globally-focused venture investment platform based in Singapore. In addition to leading capital raising and deal syndication, he is the visionary and architect behind the Hatcher Stack, the company's proprietary research and technology platform. Over the past five years, John has led numerous venture investments in early-stage companies, including ASYX, DocDoc, Dropsuite, Heardable, Invit, Inzen Studio, SocialCops, ThoughtRiver, and Telr - and syndicated over US$100Mn of additional debt and equity co-investment. IPOs and trade sales in which he was acted for the majority shareholder include Dropsuite (ASX:DSE) and Inzen Studio (ASX:ICI). His M&A work includes the merger of payment leader Telr with Dubai-based Innovate Payments, and the merger of Singapore-based companies DocDoc, and DoctorPage. Prior to co-founding Hatcher, John founded cybersecurity technology leader Authentium (acquired by CYREN in 2010), and acted as a director for global payments aggregator Mozido, and an advisor to Africa-based Gateway Communications, satellite technology developer MDS America, Kuwait-based Internet marketplace Sheeel.com, and Orion Partners, a $2B private equity fund manager based in Hong Kong.
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