Dear SaaStr: What is The Legal Responsibility To Be Transparent With Investors?

It’s a great question.

There are very few legal responsibilities for disclosures to investors in U.S. startups in general I’m aware of, other than to hold annual meetings, which can easily be waived or barely complied with. I’m an investor in several startups where I’ve never gotten an update in years. And I’m an investor in one that just sends me notices that I’m not entitled to any shareholder information.

Every investor has a few investments where they aren’t on the board where they just get … nothing.  No updates at all.

However, there usually are many contractual responsibilities. The Investor Rights Agreement often requires at least quarterly financials to larger investors, and some of the larger investors may have a “Management Rights Agreement” entitling them to more than that. And the largest investors may have Board seats.  It’s tough not to at least have quarterly board meetings, and ideally, every 60 days until you are bigger.

Then, there are moral responsibilities. You do owe your investors honest, frequent disclosures.  They bet on you.

Finally, there’s a basic axiom. You don’t get much from your investors if you don’t share much. This is so true.

-> The CEOs that share the most, the most often, get the most help.

And don’t hide from bad news. More on that here. VCs and professional investors are used to it.  Send out monthly updates to everyone, at least until say $10m-$15m ARR.  After that, you can send quarterly updates to the smaller investors and monthly to the larger ones.  Less often than that, they just … drift away.

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