Unlike public companies that must provide shareholders with regular reports, private companies have no such obligations. Indeed, many entrepreneurs are unaccustomed to dealing with investors and may not understand the needs or desires of their shareholders.
Typical early-stage stage investment documents do not provide anything in the way of governance rights to early-stage investors. Occasionally individuals, groups, or funds that make substantial investments (e.g., $250k+) will demand a board seat, but normally early-stage investors are not represented on company boards. At the Series A stage, one or more venture capital representatives almost certainly will take a board seat.
Similar to governance rights, early-stage investors rarely get formal information rights (e.g., the right to unaudited financials). Exceptions may be made for large investors – and generally are made for early-stage funds that require such information – but average early-stage investors are left at the mercy of the company for updates.
The most common interaction early-stage investors have with portfolio companies is receiving occasional, unstructured emails from CEOs announcing things like new product launches or major hires. The frequency of communication often depends on the nature and outlook of a particular CEO – some are good at maintaining regular contact with investors on the theory that investors can only be helpful if they’re current; other CEOs may not communicate at all.
Negotiating formal information rights (e.g., quarterly unaudited financials, notification before material events) or investing through a platform that requires and oversees the transfer of information may greatly enhance an investor’s ability to stay informed.
Another tactic many investors employ is to follow portfolio companies and relevant markets on various mediums.