Transparency and the Privately Funded Company
Hasik Broad asked:
New businesses often generate startup and growth capital through private equity investments. These businesses seek funding along with expert assistance from Private Investors, who invest in many different ventures like construction, real estate development, entertainment, retail, hospitality projects, technology, biotech, online businesses, and more.
A category of private investors are Angel Investors, who often serve as one of the most useful resources available to entrepreneurs. Not only do they provide the finances needed to get a business off the ground, but often offer a wide range of help and information pertaining to the enterprise. Their reasons for Angel Investing are often due to their familiarity with or interest in that line of business.
Venture Capital firms also make investments in private companies. Venture Funds are comprised of asset pooled from a number of sources including large retirement funds, institutions and high net worth individuals. Investments made by Venture Capital firms are typically managed by a partner in the firm who is usually an active board member and advisor to the company.
Venture & Angel Investors utilize both financial and non-financial information for evaluating risk, and making critical investment decisions. They need ongoing progress reports in order to determine the best course of action and whether a follow-on round of funding is in the best interest of both the company and its investors.
However, the most common complaint about companies who have taken in private investment is that the CEO’s of the companies they invest in do not provide regular status reports. And most provide no formal reports at all, even though they have a moral, legal, and fiduciary responsibility to do so.
The question is, why? Is it their intent to mislead? Are they lazy? Are they hiding something?
It is probably not any of those things. Instead, there are usually other factors that cause a CEO to fail to report to their investors?
Waiting for good news. For most companies, the good news is just another day or week away. And even when some good news finally arrives, there is some even better news another day or week away. So why not wait and send the report when you can announce the new customer, the product release, and the astounding financial performance all at once? The problem is, the stars usually do not align that way and that perfect reporting moment never seems to arrive.
Afraid to report bad news. Every angel investor knows that companies are going to miss the targets now and then. Probably more now than then. But CEO’s have a terrible time reporting even the most obvious of their foibles. But investors know that everyone makes mistakes, plans change, markets change, and the key is being able to react and redirect energy if necessary. And, in many cases, the investors may have the knowledge or key contact that could make the difference. If investors don’t know what’s wrong, they can’t help.
It is just too hard. Unless the company is a very small enterprise, most CEO’s have to gather information from multiple team members in order to compile and investor report. This involves multiple requests of people who are already stretched thin, especially as companies are forced to do less with more. So, after attempting to bird-dog status out of team members, the CEO decides to write it herself. So what started as a thorough report from across departments becomes a midnight musing of high level information. Or, more often, the months go by and nothing
Time goes by. The worst thing about being the CEO of a company is that time seems to go by at warp speed. Every day you wake up it seems to be Friday again. Or Monday, depending on your perspective. And, weekends are when you do all the things you can’t do Monday through Friday. So the CEO says to herself, I will get that report out on Friday. Then all the sudden it is the next Friday. After months of Fridays, the task just becomes too daunting to even deal with. And a little embarrassing too. What does one say after months of no communication? Where to start?
If entrepreneurs want their investors to be there through thick and thin, then they must provide investors with consistent, meaningful, quality investor updates. When things are difficult, everyone needs to pull together to ensure the best opportunity for success. And the best way for that to happen: communication and transparency.
Get Business Loans Now
New businesses often generate startup and growth capital through private equity investments. These businesses seek funding along with expert assistance from Private Investors, who invest in many different ventures like construction, real estate development, entertainment, retail, hospitality projects, technology, biotech, online businesses, and more.
A category of private investors are Angel Investors, who often serve as one of the most useful resources available to entrepreneurs. Not only do they provide the finances needed to get a business off the ground, but often offer a wide range of help and information pertaining to the enterprise. Their reasons for Angel Investing are often due to their familiarity with or interest in that line of business.
Venture Capital firms also make investments in private companies. Venture Funds are comprised of asset pooled from a number of sources including large retirement funds, institutions and high net worth individuals. Investments made by Venture Capital firms are typically managed by a partner in the firm who is usually an active board member and advisor to the company.
Venture & Angel Investors utilize both financial and non-financial information for evaluating risk, and making critical investment decisions. They need ongoing progress reports in order to determine the best course of action and whether a follow-on round of funding is in the best interest of both the company and its investors.
However, the most common complaint about companies who have taken in private investment is that the CEO’s of the companies they invest in do not provide regular status reports. And most provide no formal reports at all, even though they have a moral, legal, and fiduciary responsibility to do so.
The question is, why? Is it their intent to mislead? Are they lazy? Are they hiding something?
It is probably not any of those things. Instead, there are usually other factors that cause a CEO to fail to report to their investors?
Waiting for good news. For most companies, the good news is just another day or week away. And even when some good news finally arrives, there is some even better news another day or week away. So why not wait and send the report when you can announce the new customer, the product release, and the astounding financial performance all at once? The problem is, the stars usually do not align that way and that perfect reporting moment never seems to arrive.
Afraid to report bad news. Every angel investor knows that companies are going to miss the targets now and then. Probably more now than then. But CEO’s have a terrible time reporting even the most obvious of their foibles. But investors know that everyone makes mistakes, plans change, markets change, and the key is being able to react and redirect energy if necessary. And, in many cases, the investors may have the knowledge or key contact that could make the difference. If investors don’t know what’s wrong, they can’t help.
It is just too hard. Unless the company is a very small enterprise, most CEO’s have to gather information from multiple team members in order to compile and investor report. This involves multiple requests of people who are already stretched thin, especially as companies are forced to do less with more. So, after attempting to bird-dog status out of team members, the CEO decides to write it herself. So what started as a thorough report from across departments becomes a midnight musing of high level information. Or, more often, the months go by and nothing
Time goes by. The worst thing about being the CEO of a company is that time seems to go by at warp speed. Every day you wake up it seems to be Friday again. Or Monday, depending on your perspective. And, weekends are when you do all the things you can’t do Monday through Friday. So the CEO says to herself, I will get that report out on Friday. Then all the sudden it is the next Friday. After months of Fridays, the task just becomes too daunting to even deal with. And a little embarrassing too. What does one say after months of no communication? Where to start?
If entrepreneurs want their investors to be there through thick and thin, then they must provide investors with consistent, meaningful, quality investor updates. When things are difficult, everyone needs to pull together to ensure the best opportunity for success. And the best way for that to happen: communication and transparency.
Get Business Loans Now