Reporting – Those who don’t listen bear the consequences

After dedicating my last article to the recent change in Companisto’s participation model, the lifetime participation, I want to address another important topic today: startups’ reports to the Companists.

Reporting: A Companist’s right, a startup’s duty

All participation contracts on Companisto require the startups to publish a quarterly investor update. In this update, the startups inform their Companists about recent business developments and let their Companists participate in the challenges of constructing a successful organization. The content of these investor updates has become more specified over the years.

In the early days of Companisto, participation contracts had few directions regarding specific information that should be reported. After 2014 onward, all of them specify that investor updates must include details concerning revenue, gross profit, EBIT, liquidity, as well as to the areas of "strategic alignment & product," "marketing & sales," "press," and "personnel." The due dates for the quarterly investor updates are noted in the investor area of the startups for the Companists’ reference.

Reporting: Contractual penalty in case of violation of duties

But what if a startup does not publish its report punctually? What does Companisto do in this situation? This is a valid question which the Companisto community has discussed extensively within the past few months. We took the crowd’s suggestions as an opportunity and installed additional internal processes to improve our reporting.

In early 2016, we agreed on contractual penalties with startups, whose campaigns have launched since then, if an investor update is sent in late or incomplete. In the meantime, we enforce punctual reporting for all other startups (launched prior to the introduction of contractual penalties) through an attorney. Those who don’t listen bear the consequences. We have hired a dedicated member of staff to supervise the punctuality of investor updates, to remind startups of the reports in good time and - if necessary - to enforce the reporting obligations together with our lawyers.

Ever since implementing this process, we have increased the punctuality of the investor updates to 94.59%. Of 74 investor updates, 70 of them were on time while only 4 came (slightly) delayed. We are confident that the new system will increase this rate to nearly 100% in future. It is important to note, however, that the majority of startups already report punctually. Up to now, there has not been a need to enforce any report by way of law. The startups are intrinsically motivated to publish investor updates on time. Nevertheless, it is important to establish appropriate processes for the 64 startups financed by our Companists.

Reporting: Consistently improving investor updates

Since May 2015, we have expanded the scope of the investor updates. All startups launched since then report not only revenue, gross profit, EBIT, liquidity, about the areas of „strategic orientation & product“, „marketing & sales“, „press“ and „personnel“. They also provide a target / actual comparison regarding their current annual financial plan and report about current challenges, highlights, and their next steps.

In the future, we will continue to find ways to improve the reports. It is important to find the right balance between the justified interest in information on part of the Companists and the equally justified interest of the startups not to let internal information that is relevant for competition leak to the outside. This would harm the startup and thus the investors, too. Finding the right balance here is the foundation for collective success.

The contractual penalties should not, of course, become a new source of income for Companisto, but should instead benefit the Companists. Do you have suggestions on how to use any "revenue" coming from future enforcement of contractual penalties to benefit the Companists? And what do you, as a Companist, think of the changes? Let us know your thoughts! I look forward to an exchange of ideas.

About the author:

Tamo Zwinge is co-founder of Companisto and previously worked as a lawyer in the international law firm CMS Hasche Sigle in the area of corporate law, corporate transactions and private clients for several years. He was an expert for the Finance Committee of the German Bundestag on the German Retail Investor Protection Act and published articles on corporate governance issues internationally, including in the USA and England. Tamo Zwinge completed his Master of Laws (LL. M.) degree with First Class Honors in Commercial Law, focusing on International Company and Capital Markets Law, Corporate Governance and International Sales and Finance at the University of Auckland.

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