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These three startups were recently accused of misstating their financial information, highlighting how little such companies may have to disclose to their VC backers and other investors

These three startups were recently accused of misstating their financial information, highlighting how little such companies may have to disclose to their VC backers and other investors
Headspin



Recent alleged financial misstatements at a trio of startups highlights the much lower reporting standards for private companies.




Unlike public companies, private ones aren't required by law to have their results independently audited, and they aren't mandated to release quarterly or annual reports.




What information such companies do disclose to their investors is typically governed by the contracts the two parties sign when investors buy stakes in the companies, but those agreements can allow the companies to limit the information they share with earlier backers or those with fewer shares.




Although financial shenanigans can take place at both private and public companies, the fact that there's less information available to investors about private companies can make it harder for investors to assess their performance, startup experts told Business Insider.




Visit Business Insider's homepage for more stories.



One of the benefits private companies enjoy is they don't have to follow all the rules that govern publicly traded ones, particularly when it comes to disclosing their financial information.
Those companies' investors may not have accurate or up-to-date information about them — and their management teams might be able to engage in financial shenanigans or even fraud a bit more easily — sometimes causing the investors to take big losses.
That even goes for the expert investors famous for conducting due diligence before they put up millions to fund tech startups — venture capital firms.
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