Easily Track Portfolio Progress and Increase Transparency.
It’s natural that you want to know what’s going on with your portfolio. Without regular performance updates, portfolio managers are left in the proverbial dark.
An uncomfortable spot to be in when your job requires you to have a handle on every investment.
That’s a good reason to want to know what’s going on, and there’s one principal way to stay up to speed: information rights.
The information rights provision (found in shareholder agreements) allows portfolio managers to have open or partial access to their portfolio companies. The scope of access depends on the nature of the investment along with the wording used and executed in the signed agreement.
“Reporting and Access Requirements - Unless waived by Investor, the Corporation shall provide to Investor, as long as it holds any equity securities:(a) Audited annual financial reports to Investors within 180 days of the end of the fiscal year.
(b) Quarterly unaudited financial summary and “management dashboard” updates on progress and accomplishments against targets in past and next period, in a mutually agreeable form, to Investors by the 15th calendar day of the following month.
(c) Annual budgets will be supplied to the Board of Directors at a regularly noticed Board meeting, but in no event later than 45 days prior to the beginning of each fiscal year for approval.
(d) Customary inspection rights.”
Founders, even the best ones, tend to put this provision on the back burner.
This isn’t because they don’t want to be transparent with you. Rather, they’re trying to avoid reporting becoming a massive workload drain on their company’s resources.
To ensure that this provision is met, investors should consider adding an additional clause that specifies the means to distribute the information rights.
Most Hockeystick customers already do this.
Example Technology Clause Language:
“(e) The Corporation agrees to use the reporting platform or system that has been designated by Investor for the purposes of its reporting obligations under this Agreement.”
There are numerous benefits of adding this clause. To start, it sets the benchmark of how portfolio companies need to report to you from day one — eliminating any uncertainty about the process.
It also synchronizes your operations. Instead of chasing companies for updates — that are usually sent in a variety of formats (Excel, Word, email etc.) — you’ll receive structured, tailored data across all portfolio companies.
Reducing the hassle of collating and cleaning data from every investment.
As your portfolio grows, it only becomes more challenging to scale and organize the reporting process.
That’s why we recommend adding enhanced information rights to your legal agreements and having an up-front discussion with portfolio companies about the information you expect.
In a recent report conducted by EY, 63% of the surveyed fund managers consider success for their private equity funds to be “all about data” — sourcing it, managing and analyzing it.
With many restructuring their current reporting frameworks and internal processes to include technological solutions and clauses.
Smart adaptation that will keep them out of the dark.