Dear SaaStr: Can I Get Away With Not Giving a Smaller VC Information Rights?
Yes, there are real risks to giving investors information rights, and it’s important to understand them before agreeing to these terms. Stuff leaks. Stuff is forwarded that shouldn’t be. And VCs just plain gossip. It’s the truth.
So ideally, you’d tightly control who gets “information rights”, i.e. rights to all your financials and investor materials. But in practice, anyone investing $1m or more is going to need them.
Information rights are fairly standard in venture deals—especially for institutional investors—they can create challenges if not managed carefully. Here’s what you should consider:
1. Risk of Leaks
– The Problem: The more people who have access to sensitive company information, the higher the risk of leaks. This could include financials, customer data, or even strategic plans. Small investors, in particular, can sometimes be the biggest leakers, whether intentionally or accidentally.
– Mitigation: Limit the scope of information rights to only what’s necessary. For example, you might provide high-level financials and KPIs but avoid sharing granular details like customer lists or pricing strategies. Also, keep the circle of recipients as tight as possible—ideally, just board members and major investors.
2. Increased Scrutiny
– The Problem: Investors with information rights may scrutinize your performance more closely, which can lead to micromanagement or unnecessary pressure. This is especially true if you’re missing targets or facing challenges.
– Mitigation: Be proactive in your communication. If you’re transparent about both wins and challenges, you can build trust and reduce the likelihood of investors overreacting. Regular updates can also help manage expectations and avoid surprises.
3. Competitive Risks
– The Problem: If an investor has ties to a competitor—either directly or through their portfolio—there’s a risk that sensitive information could be used against you. Even if it’s unintentional, conflicts of interest can arise.
– Mitigation: Be cautious about granting information rights to investors who might have competing interests. If you’re concerned, you can include confidentiality clauses or limit the scope of the information they receive.
4. Administrative Burden
– The Problem: Providing regular updates and detailed reports can be time-consuming, especially as your investor base grows. This can distract you from running the business.
– Mitigation: Create a standardized reporting template that you can use for all investors. This will streamline the process and ensure consistency. Focus on key metrics like ARR, churn, and cash runway, and avoid getting bogged down in unnecessary details.
5. Potential for Misalignment
– The Problem: Investors with information rights might push for decisions that align with their interests but not necessarily with the long-term health of the company. For example, they might pressure you to prioritize short-term growth over sustainable scaling.
– Mitigation: Stay clear on your vision and strategy, and don’t let investor feedback derail you. While it’s important to listen to your investors, you’re the one running the company.
My Take
Information rights are a standard part of venture deals, and most investors will expect them. The key is to manage them thoughtfully. Be transparent, but don’t overshare. Limit access to sensitive information, and make sure you’re only granting rights to investors who are truly aligned with your vision.
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