Portfolio Management: Managing your Startup Investments

The moment you transfer cash to a startup’s bank account, this startup becomes part of your portfolio. The game changes. Your relationship with the startup changes from screening and due diligence to investor relations. With that, as an investor, you have to conduct portfolio management-related activities.

Portfolio management is the art and science of tracking your investments and making healthy decisions for your financial wealth. For startups, this includes several activities that we will discuss in this article.

1. Recording Investment Transaction

Angel investors who do invest, or plan to, in multiple startups need to record their investment transactions. Some investors record their transactions on a simple spreadsheet. Others may use a software tool dedicated to startup investments.

No matter what you choose to use, a typical investment transaction list includes:

  • Transaction Date
  • Startup Name
  • Transaction Type (Equity, SAFE, or Convertibles)
  • Amount Invested
  • Shares Owned
  • Price per Share

2. Receiving and Analyzing Founders’ Updates

Founders in your startup portfolio will send out periodical investor updates of their startup status. The periodical period may be monthly, quarterly, or annually.

Whether or not founders must send the updates depends highly on your relationship with the startup. If you have a relatively large ownership percentage, sending updates periodically could be critical. This is especially true if you have a board seat. If the startup has many investors with small check sizes, including you, investor updates are typically sent as an FYI.

In the best case, investor updates will take two forms:

  • Written update: a summary of the recent developments within the company.
  • Metrics update: the latest KPI numbers for the company.

3. Providing Advisory

Depending on your preference, you may choose to provide consultation or advisory based on your area of expertise.

Angel investors typically provide consultation in the form of office hours. Let founders know when you’re available for mentorship and opinion sharing.

4. Making Additional Investments

Investors may decide to add more funding to the company for three main reasons:

  1. Adding fuel to the fire: investing more in an already successful company.
  2. Saving the company: investing more to save the company from running out of cash.
  3. Preserving ownership: investing more to protect ownership from dilution when new investors come in.

The decision to invest more highly depends on the type of investment contract you signed and the performance of the company. Reading and analyzing the founders’ updates is your key to deciding whether the startup is worthy of additional investments.

5. Shareholder Changes

Whenever there is a major change in the shareholders of the company, you must be aware of its impact. This includes raising additional funds or selling existing shares.

Your shareholder rights provide you with a range of actions. Pro-rata rights, for example, give you the option but not the obligation to participate in a new funding round to protect your ownership percentage from dilution.

Join VeFund

At VeFund, we built a tool for managing periodic written updates and KPIs. You can build your own templates and invite your portfolio startups to fill them out periodically. Join us now and put your portfolio communications on autopilot.

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