While taking on venture capital can provide a means for companies to scale their efforts at a faster rate than bootstrapping, there are trade-offs. In addition to sharing the equity with investors, there is also considerable work that needs to be done regularly to keep investors informed and engaged.

We interviewed three Indiana tech company CEOs to ask them about the process and effort of providing reports to their investors. Their companies have all taken on institutional investments.

Meet the companies

Sigstr helps marketers push content and campaigns to employee email signatures, driving brand consistency and real marketing results. Sigstr participated in the 2017 Winners’ Circle event where they met Grand Ventures, one of the firms that contributed to their $5 million Series A raise.

ClearObject is an IoT Systems Innovator helping the world’s best companies connect their bold ideas to the Internet of Things. The company brings their years of experience, team of experts and coalition of leading partners together to make IoT solutions a reality. ClearObject secured a multi-million dollar line of credit via a venture bank in 2017.

Bolstra is a software solution (SaaS) provider for B2B companies looking to increase their recurring revenue by reducing churn and identifying upsell opportunities. Bolstra’s solution, with built-in best practices, helps companies drive the desired outcomes that customers demand. The company recently closed a $1.5 million seed round.

What regular reporting are you expected to produce for investors?

Bryan Wade, Sigstr

“It depends on the investor. On a monthly basis, we send standardized financial reports to certain investors that require those details. Other investors don’t have those requirements.”

John McDonald, ClearObject

“It is critically important that the company is able to produce a balance sheet, income statement, statement of cash flows and a capitalization table (if required). While in early rounds of financing these will not be subject to audit, the policy should be that they ‘could’ be audited. At some point you will need to actually submit them to audit.”

Haresh Gangwani, Bolstra

“Regular quarterly reports are required by venture capital firms, and the frequency varies from firm to firm. In general, they require updates on previous period accomplishments, upcoming priorities, any changes to the leadership and information on financials.”

How much time does this reporting typically take?

John McDonald, ClearObject

“Ideally it is instantaneous, in that you have an accounting system you are using religiously such that producing reports is as simple as ‘file-print.’ In practice, there will be a ‘trial close’ where the reports will be produced, checked for errors, and then compensatory entries made to correct any issues, and a second set produced as ‘final.’ This should take no more than an hour if the accounting system is utilized all month long.”

Haresh Gangwani, Bolstra

“If the information is readily available (as it should be) it only takes a couple of hours to complete.”

Where there any other requests that you might not have anticipated?

Bryan Wade, Sigstr

“We went into the process expecting there might be requests, such as audits, from potential investors. We negotiated those kinds of controls out of the terms and were still able to obtain the funding.”

John McDonald, ClearObject

“There are a few common controls that investors will put in place. First, they will seek a board seat in most cases. There is no real value to more than one seat, but from this position, they are entitled to oversight and review of nearly every aspect of the business operations. More importantly, they can form committees of the board and reserve to themselves powers that are agreed to by other board members, such as the creation of a ‘compensation committee’ to review executive pay and bonus plans. Thirdly, they will often work ‘covenants’ into the closing documents of a round which reserve special powers to the class of shares or to an individual investor, such as a prohibition against replacing any executives without review, or limits on indebtedness or expenditures.”

Stay tuned for an upcoming article on bootstrapped companies and how their processes are both different and similar.

We write often about Indiana tech companies that are raising money to scale their efforts. Moreover, TechPoint brings together startup and scale-up tech companies with venture capital firms every year through events like Winners’ Circle.