• Bill Reichert, Managing Director, Garage Technology Ventures, (bio)
• Todd Forrest, Chief Financial Officer, Hummer Winblad Venture Partners, (bio)
• Michel Wendell, General Partner, Nexit Ventures, (for bio, click on team at the Nexit Ventures website)
• Giacomo Marini, Managing Partner, CIR Ventures, (bio)

I asked these 4 experts for a description of the reports they want to see their portfolio companies present to the Board of Directors. I would like to thank Bill, Todd, Michel and Giacomo greatly for taking the time to respond to my inquiry and make this very valuable information available to readers of Propel Your Venture. Here’s a compilation of their replies:

One expert noted: “This is an area of surprising inconsistency in the entrepreneur and venture community, even among the most seasoned veterans. Part of the reason is that no one template fits a broad range of early stage companies. Each company has different issues that are critical, and the reporting/communication system needs to reflect that.”

Another expert stressed the importance of identifying and reporting on the 2-4 key metrics that drive the business model. He felt that these key metrics provide more valuable insights into managing and growing the business than standard financial statements, which are nonetheless needed to ensure that the company is properly managed.

Summary Performance Report

One contributor stated that he likes to first see “a one page plan vs. actual report that covers the company's key financial metrics for the month, for the quarter to date, and for the year to date. The left column should include a simplified P&L, plus other key metrics, such as Capital Expenditures, Cash Burn, Cash Balance and Headcount. Other items might include Bookings, New Customers, Renewals, Receivables, Cash Runway, or others, depending on what the company and investors consider to be key performance metrics.”

Financial Statements & Budget

For one contributor it was important that standard financial statements - including a monthly and quarterly P&L, Balance Sheet and Cash Flow statement – should generally be on one page in the Appendix and done in the same level of detail that management uses for its own purposes. The monthly operating plan (budget) for the year, also placed in the Appendix on one page, should include the key financial metrics in the Summary Performance Report. If the operating plan is amended mid-year, the date of the amendment should be clearly noted. The Board may or may not want to keep the original plan behind the revised plan in the Appendix.

Another contributor’s firm asks for the following:

• Income Statement

  Budget vs. actual for month and year to date as well as forecast for the year vs. budget. The level of details includes:
   

1. Revenue, cost of goods sold, and margins (in $ and %) by whatever revenue type that applies to the business. So if it’s software, it would be license, maintenance & support, and professional services.
2. Operating expenses by department
3. A separate expense comparison of budget vs. actual for the month and year to date by major expense line item/account
    
• Balance Sheet: Budget vs. actual
   
• Statement of Cash Flows: Budget vs. actual for month and year to date as well as forecast for the year vs. budget.

One expert mentioned that for companies with more than 4 quarters of revenues, he likes to see actual vs. prior year for comparable periods. He added that he is generally more interested in looking at trends, and comparisons to the operating plan and the prior year, than in getting very detailed about the line items in the financial statements. This of course unless things go wrong, in which case he will scrutinize the line items.

As technology businesses often change assumptions in any one year, it is important not to lose sight of the budget. Adjustments to the assumptions are made in the forecast while the budget figures are frozen during the budgetary period.

Sales Pipeline

One expert said that the sales pipeline is “probably the most important and most poorly done report in most Board packages. At the top of the pipeline should be accounts closed in the last month. The next tier should be accounts projected to close in the next 90 days, with subtotals for each month. The next tier should be qualified accounts expected to close beyond 90 days but within the year. The biggest problem with these reports is that there is no accountability from month to month -- if accounts slip or are lost, rarely is this clear on the report. Generally, Board members need to pull out last month's packet to try to compare. Depending on the complexity of the sales process, you might be able to reconcile changes in the pipeline on the report (a column labeled Change). Or you can simply put the previous month's pipeline in the Appendix.”

A different approach, suggested by another source, is to look at 2 sales pipeline formats: a graphic format in the form of a funnel, and a detailed format showing size of deals, type of revenues, timing, revenue recognition, etc. In the funnel representation, there are 3 sections. Each section includes potential deals with a range of deal close probabilities. For example, 10% to 49% for the top part, 50% to 79% for the section below, and over 80% for the lowest portion. This approach provides a good indication of the density of the population in the top part of the funnel. By observing the evolution of the funnel over time, management and the board can track the deals that are lost and those that weren’t included in the funnel. The funnel method does not offer any timing information other than the fact that the higher the probability, the more imminent the deal will be. For example, a probability of 90% would correspond to a potential deal that is expected to materialize in 30 to 60 days.

Another expert suggested one more alternative, and that's to provide named accounts for the next 2 - 3 quarters, depending on the sales cycle. The pipeline would include the estimated deal size, its breakdown by various components (i.e. license, maintenance, and professional services for a software company), the closing probability, and the estimated date of close.

Finally, one source said that he likes to see the pipeline "windowed" by the expected closing time frames: 30 days, 60 days, 90 days, 120+ days. He added that it’s also useful to see the pipeline growth over the prior six months and measure how much was added to it each month. He stressed the importance of graphs which can be more telling than numbers.

Key Objectives

One contributor stressed the importance of reporting on key objectives: “This is probably the most important report, which summarizes key objectives and accomplishments on a monthly basis. Each year, as part of the development of the operating plan, there should be a list of key objectives and deadlines. Then each month there should be a fleshed out review of accomplishments vs. objectives for the last 30 days, and objectives and expectations for the next 60 days. Then the key objectives for the year should be included in the Appendix, right behind the operating plan. And, if the Board desires, the key objectives and accomplishments from the prior month can also be included in the Appendix.”

Other Information

Additional information might include the following:

• An executive summary of key events such as sales/partnerships, key hires, management changes, and product releases;
• A detailed staffing plan;
• A headcount chart;
• A product development report;
• Marketing activities;
• A detailed accounts receivable and accounts payable aging;
• A proposed option grants schedule that details name, title, reason for grant, number of options proposed, existing options if any, total cumulative options after the grant, percent of fully diluted shares, and whether the aggregate shares fall within the company board of directors pre-approved option range for the position under consideration;
• Previous board minutes.

As one contributor puts it, the “Monthly Board Report should be a consistent 5 or 6 core slides, and 5 or 6 appendix slides, and should be produced on a consistent basis whether or not there is a Board meeting that month.” He adds, “This is, of course, much easier said than done. The main problem for most teams is that the world changes, and so plans change, and maintaining consistency is hard. But it makes life much easier for management and for boards if there are fewer, consistent reports rather than a new batch of creative slides each board meeting.”