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Jeff Mann

When worried investors ask the management of a privately held company how it's doing financially, there's often a scramble to provide them even the most rudimentary information.

"We call it 'interns and Excel' – people will get on the phone and say, 'I haven't heard from you in three quarters,' and they'll send them a PDF or a Google spreadsheet," said Raymond Luk, founder and chief executive officer of, a financial-technology startup that helps companies share financial and other relevant data with investors. "When you add it all up, there are hundreds of millions of dollars being discussed as if it was a grocery list."

Startups often struggle to disclose basic financial information – things such as cash flow, their balance sheet, profit and loss – and it can make investors nervous, Mr. Luk said.

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"If you put $1,000 into a mutual fund, you get certain information – but if you decided instead to put that $1,000 into a local restaurant and you never hear from them again, that's not fair," Mr. Luk said. "It's not just a problem for investors; it's a problem for companies – the lack of transparency means they get phone calls in the middle of the night asking what's going on."

Hockeystick, named for the shape of the steep growth curve that startups aspire to, aims to solve this problem by making it easier for companies to share information that's relevant to investors. This includes their corporate and legal structure, ownership, financial statements and indicators of growth, such as how many people they're hiring, Mr. Luk said. Investors may also want to know about areas of risk in the business, areas the company might need help and management's plans for the future.

"An investor shouldn't have to say, 'I don't really know where my money is going and I don't know what the return is,'" Mr. Luk said. "It doesn't ring true when there's so much data out there."

More than 10,000 private companies use the Hockeystick platform, but they don't pay. Nor do more than 3,500 individual investors, Mr. Luk said. The monthly fees are paid instead by more than 70 large investment funds and funding bodies, including Futurpreneur Canada.

Most investors don't require audited financial statements every quarter; they just want to know whether or not they should be scared – and that "the CEO hasn't used the money to buy a yacht," Mr. Luk said.

Investors and companies agree on what data will be shared through Hockeystick, and how often.

"A restaurant will have a different requirements than a law firm," Mr. Luk says.

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Unlike people investing in a mutual fund, startup investors often get sold on an idea – and they are willing to wait seven to 10 years for a return.

But if they're spending that time completely in the dark, they may suddenly discover that their investment has not been used wisely.

One company that has drawn increased scrutiny is Theranos Inc., the privately held, California-based blood-testing startup. It's now under investigation by the U.S. Securities and Exchange Commission after reports that its flagship blood-testing device may not actually work.

"With Theranos in the U.S., we're watching the dissolution of a unicorn – it was valued at $10-billion [U.S.] a few months ago, and now it's on the verge of collapse," said Dan Herman, executive director of economic think tank Centre for Digital Entrepreneurship and Economic Performance (DEEP) in Waterloo, Ont., an economic think tank.

"It's been feared that the lack of transparency across the startup space was going to come home to roost – whether that's true or whether it's just a one-off, it's hard to tell," said Mr. Herman.

There's a demand for companies to provide "the information that a retail investor will understand to make a rational and informed decision," Mr. Herman said.

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KoreConX, which helps startups apply to equity crowdfunding platforms, says it aims to make it easier for companies to share information with their equity crowdfunding shareholders.

"Right now, it's quasi do-it-yourself," co-founder and chief financial officer Jason Futko said. "And for companies, there's a huge need for governance and compliance at the small dot-com level, where they can't afford to have somebody do that for them."

Although KoreConX said it could not provide "exact numbers" of companies using the free tool, director of business development Manuj Grover says the company operates in five countries and works on a "freemium" model, where clients pay for additional services.

While there are now regulations for equity crowdfunding, investors in other privately funded companies are often on their own.

"Usually when you invest in a company, there's a legal agreement that the investor has certain rights – but your only recourse is to sue the company," Hockeystick's Mr. Luk said.

Companies aren't necessarily trying to hide information or "pull a fast one on investors," he said.

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"It might be a company of one person and the same person providing the service may be doing the bookkeeping," Mr. Luk said. "People are not trained as accountants and struggle to do what investors want them to do when it comes to full disclosure."

It's not only shareholders who can benefit from greater transparency. Governments need more data to figure out whether the money they're putting into helping startups and small businesses is actually working, Dr. Herman says.

"In the U.K. and across a number of European countries, you're mandated to release annual sales and employee numbers," Dr. Herman said. "It allows them to create cluster maps of who's growing and how much they're growing – right now in Canada, we don't have any of that kind of data."

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