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By Tamo Zwinge

If they don't listen, they will suffer the consequences

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After discussing the new investment model on Companisto, lifetime participation, in my last article, I want to focus on another important issue today: start-up reporting for Companists.

All participation contracts on Companisto require the start-up to publish an investor update for their Companists once per quarter. In these investor updates, the start-ups inform their Companists about business developments and share the challenges a start-up faces when developing a successful company. The content of these investor updates became more and more specific over the course of the last years. While participation contracts from the early days of Companisto included basically no guidelines on which information to include in the update, the participation contracts since the end of 2014 have specified that investor updates must include information on revenues, gross profit, EBIT, the liquidity situation as well as the areas "Strategy and Product", "Sales and Marketing", "Press" and "Personnel". Companists can access the publication dates for the quarterly investor updates in the start-ups' investor relations sections.

But what happens if a start-up does not publish its update on time? What does Companisto do in this case? This justified question was a hot topic in the Companisto community in the past months. We took the crowd's suggestions seriously and have installed additional internal processes at Companisto.

Since early 2016, we have agreed on penalties with the new start-ups for the case that they do not submit a complete investor update, or if it is not on time. We have even started to consistently, and with the help of lawyers, enforce this development with start-ups that were launched before the penalty clause was introduced. So basically, if they don't listen, they will suffer the consequences. We have even assigned an employee the task of ensuring that all investor updates are punctual, that start-ups are reminded about the updates and, if necessary, to enforce the reporting obligation with the help of our lawyers.

Ever since introduction of the new process, we have been able to raise the punctuality rate of investor updates to a significant 94.59%, which means that 70 of 74 investor updates have been on time since then, and only 4 arrived with a (slight) delay. We are confident that we will be able to increase the rate to almost 100% with the new system. I would just like to use this opportunity to reiterate that the large majority of start-ups submit their reports on time without prior reminders. So far, we have not had to legally enforce a single report. The start-ups are themselves very dedicated to publishing their updates punctually. Nonetheless, with 64 start-ups financed by Companists, it is vital to establish certain processes.

Since May 2015, we have additionally increased the scope of the investor updates. All start-ups that were launched since that time not only report on revenues, gross profit, EBIT, the liquidity situation and the areas "Strategy and Product", "Sales and Marketing", "Press" and "Personnel" but also put together a comparison of target values and actual values in relation to their current annual budget and report on current challenges, highlights and their intended next steps.

We will continue to discuss how to develop reporting in the future. It is, however, important to find the right balance between the Companists' justified thirst for information and the equally justified interest of the start-ups to not publish internal information relevant for the competition as this would otherwise also damage the investors. To balance these two sides is a building block of mutual success.

The penalties are naturally not intended as a new source of income for Companisto but should benefit the Companists. Do you have any suggestions on how to use possible future "income" in the case of implemented penalties so as to benefit the Companists? And what do you, as a Companist, think about this development? Share your thoughts with us! I look forwarding to interesting discussions.

Tamo Zwinge

 

About the author: Tamo Zwinge is the founder of Companisto and used to work as a lawyer specializing in corporate law, corporate transactions and private clients in the major international law firm CMS Hasche Sigle. He was a participant in expert hearings at the Finance Committee of the German parliament on the protection of small investors act and has published international legal essays on corporate governance topics in the US and England. Tamo Zwinge holds a First Class Honors Master of Laws (LL.M) degree in commercial law with a focus on "International Company and Capital Markets Law", "Corporate Governance" und "International Sales and Finance" from Auckland University.



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