Jul 16 2007 by Jason

What Are The Appropriate Information Rights for Angel Investors?

Q:  I’m CEO of a venture backed startup. In addition to my VCs, I have about 20 angel investors from the Series A round. What is the appropriate way to handle information requests from smaller angel investors who want copies of my board presentations and monthly financials? These angels do not have information rights, but they are requesting the courtesy of receiving the same materials I provide my VCs. They are willing to sign NDAs, but I’m nervous about forwarding electronic copies of sensitive materials.

A:  (Jason)  This is an issue that all angel-funded companies have to deal with and while there is no “right” answer, there are some general guidelines to follow.  First of all, regardless of what the documents say, you want happy investors and you do owe them some information.  That being said, it’s probably not the same information that the Board receives.

I think that you can justify giving the board different information for two reasons:  One, the board has duties of care that mandate it taking a more in-depth look into the company to comply with these duties and two, board discussions (if attended by the company’s lawyers) are protected by attorney-client privilege.  If you were to pass out the board materials to your angel investors, it’s arguable that you’ve waived the privilege.

Given your amount of angel investors, I’d consider putting together an alternative information packet which would include a cover letter, some business updates and financials.  I would think that quarterly updates should suffice.  This could easily be PDF / email / hardcopy, whatever you feel most comfortable with.  You could also choose to do a conference call with your angel investors every so often and let them ask questions.  Note, however, that this format can turn into a “free for all” and I’d be cautious in using this approach.