Information rights – enhancing transparency and protecting interests

In venture capital deals, information rights are a cornerstone of the relationship between founders and investors. These provisions grant investors access to financial, operational, and strategic information about the company, ensuring transparency and accountability while protecting their investment. 

For founders, information rights are a way to keep investors engaged and informed, but overly broad or burdensome requirements can disrupt day-to-day operations.

This article in our ‘Anatomy of a term sheet’ series explores how information rights are structured in venture capital term sheets, their practical implications, and how founders and investors can align their expectations to foster a productive partnership.

What are information rights?

Information rights are contractual obligations requiring the company to provide certain types of information to its investors. They are typically included in the investment agreement or shareholders’ agreement and are tailored to the company’s stage, size, and industry.

These rights aim to:

• Facilitate monitoring: allow investors to track the company’s performance and risks.
• Support decision-making: provide data for board discussions, follow-on investments, and exit planning.
• Enhance governance: promote transparency and accountability in the management team.

Types of information typically covered

Financial information

• Audited accounts: annual financial statements, often audited for later-stage companies.
• Management accounts: monthly or quarterly reports providing updates on revenue, expenses, and cash flow.
• Budgets and forecasts: annual budgets and future financial projections.

Example clause:

"the company shall provide the investor with audited annual accounts within 120 days of the end of the financial year and quarterly management accounts within 30 days of the end of each quarter."

Operational and strategic information

• KPIs and metrics: key performance indicators relevant to the business model, such as user growth, churn rates, or customer acquisition costs.
• Material developments: updates on major contracts, regulatory issues, or significant operational changes.

Example clause:

"the company shall notify the investor promptly of any material developments that could significantly impact the business, including major litigation or regulatory changes."

Governance and board information

• Board minutes: access to minutes from board meetings to stay informed about strategic decisions.
• Investor updates: regular written reports or calls with the management team.

Example clause:

"the company shall provide the investor with copies of board minutes within 14 days of each board meeting."

Event-driven disclosures

• Notifications of funding rounds, share issuances, or changes to the company’s capital structure.
• Immediate reporting of major adverse events, such as data breaches or insolvency risks.

Structuring information rights

Tailoring to the stage of the company

• Early-stage companies: investors may require limited information, such as unaudited accounts and periodic updates.
• Growth-stage companies: as businesses scale, investors typically request more detailed reporting, including audited financials and board-level metrics.

Frequency and timing

• Financial reporting timelines are usually aligned with standard accounting periods (e.g., annual audited accounts, quarterly management reports).
• Event-driven disclosures, such as material developments, are typically required on an as-needed basis.

Balancing detail and administrative burden

• Founders should ensure information rights do not impose excessive reporting requirements that distract from running the business.
• Investors should focus on key metrics and reports that align with their oversight needs.

Challenges in implementing information rights

Overlapping responsibilities

Founders must balance investor reporting with operational demands, particularly in lean teams with limited resources.

Confidentiality concerns

Detailed reporting increases the risk of sensitive information being misused or leaked, particularly when multiple investors are involved.

Divergent expectations

Early-stage investors may prefer simplicity, while later-stage investors often demand more granular data, creating challenges in standardising reporting.

Administrative burden

Frequent or overly detailed reporting can divert time and resources from core business activities.

Analysis: founders’ perspective vs investors’ perspective 

In summary

Information rights are a vital component of venture capital term sheets, ensuring that investors remain informed and engaged while founders focus on building the business. 

By structuring these provisions thoughtfully and tailored to the company’s stage, sector, and resources - founders and investors can create a framework that supports transparency, accountability, and growth.

Read the next article in our ‘Anatomy of a term sheet’ series, where we’ll explore confidentiality provisions, and unpack the critical role of NDAs and confidentiality terms in venture capital negotiations. 

If you're navigating the complexities of venture capital term sheets or preparing your business for investment, our experienced team is here to help. Get in touch to discuss how we can support you in securing the right deal for your business.

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