What information rights do investors receive in venture capital financings?
Takeaway: Venture investors require formal "information rights" that contractually obligate the company to provide regular financial statements and access to key metrics, ensuring they can monitor the health and performance of their investment.
When a venture capital fund invests in your startup, they become a major partner and owner. To fulfill their own fiduciary duty to their investors (their Limited Partners), they must be able to closely monitor the performance and financial health of their portfolio companies. This is not left to chance or goodwill; it is a formal, contractual right known as an information right.
These rights are a standard and non-negotiable part of any venture financing and are detailed in a key legal document called the Investors' Rights Agreement (IRA).
What Information Are You Obligated to Provide?
The IRA will create a contractual obligation for the company to provide its major investors with a standard package of financial information on a regular basis. This typically includes:
Quarterly Financial Statements: You will be required to provide an unaudited income statement, balance sheet, and cash flow statement within a set period (e.g., 45 days) after the end of each fiscal quarter.
Annual Financial Statements: You will be required to provide annual financial statements (sometimes that have been formally audited by a professional CPA firm). This is often required within 120-180 days of the end of each fiscal year.
Annual Budget: You must provide a copy of the detailed, board-approved operating budget and financial plan for the upcoming year.
Other Key Information: The agreement will also often include a general "catch-all" provision that requires you to provide any other information that the investor reasonably requests.
Who Gets These Rights?
This is a key point. These extensive information rights are typically not granted to every single investor. They are reserved for "Major Investors."
The IRA will define a "Major Investor" as any investor who holds at least a certain number of shares (e.g., 1,000,000 shares). This ensures that only your significant, institutional investors have the right to demand this detailed financial information, preventing the company from being burdened with providing sensitive data to dozens of smaller angel investors.
A Tool for Good Governance
While these requirements can seem like a burden, founders should view them as a positive forcing function. The discipline of preparing professional, board-quality financial statements on a regular quarterly and annual basis is a hallmark of a well-run company. It forces you to have a deep, quantitative understanding of your own business, which is essential for making sound strategic decisions.
Information rights are a standard and reasonable part of the venture capital bargain. They provide your partners with the transparency they need to monitor their investment and, more importantly, to provide you with informed, data-driven, and strategic advice as you grow your company.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.