Information and Access

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Updated September 19, 2022
Angel Investing

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What if you made an investment in an early-stage company and never heard from them again; or only received documents to sign when they wanted to authorize more stock? Many investors like to know what is going on with their investments, and the rights described in this section make sure that you as an investor can get regular updates and access to management if you want that.

Information Rights

Information rights are the rights to receive certain information about the company at specified times—for example, the right to receive quarterly and annual financial statements, the right to receive an updated capitalization table from time to time, and the right to receive the company’s annual budget. Sometimes, information rights are only made available to investors who invest a certain amount in a financing (typically referred to in the investment documents as a “major investor”).

importantCompanies that go dark, or that do not communicate with their investors on a regular basis, can be a significant source of angst for investors. If an entrepreneur or lead investor (who might be a major investor while you are not) pushes back on inclusion of all investors in information rights, you can stress that there is no additional work required by the company. The documents are already being prepared, and they just need to add you to the electronic distribution list.

Inspection Rights

Inspection rights are the rights to visit the business premises, meet with management, and review the company’s books and records. Companies may have a legitimate reason to push back on giving all investors inspection rights, as it could be a significant drain on management’s time if they were obligated to meet with or entertain at their office a large number of individual investors.

You can find example inspection rights language in Section 3 of the NVCA example Investor Rights Agreement.

The reasons to push for these terms mirrors the reasons to push for information rights. However, because of the potential business disruption, inspection rights are usually reserved for major investors.

Observer Rights

Observer rights are rights to attend a company’s board meetings as a guest, in a non-voting capacity. The ability to attend board meetings provides tremendous insight into what is happening at the company. However, often very sensitive information is discussed, and a company may be very reluctant to provide this right to anyone other than the lead investor for a particular round.

A company would typically prefer observer rights to include confidentiality language and the ability to exclude the observer to maintain attorney client privilege. An example of an observer agreement can be found in the appendix.

Liquidity

Terms in this section impact how and when you might get cash back out of the investment. We discuss liquidation preferences in the section covering preferred stock, since a liquidation preference is most typically a facet of a preferred stock financing.

Redemption Rights

Redemption rights (or put right) are the rights to have your shares redeemed or repurchased by the company at the original purchase price or some multiple, usually after a period of time has passed (perhaps five years). It is also possible to prepare these provisions to allow redemption in the event the company fails to reach a milestone, or breaches a covenant.

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