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venture capital & entrepreneurship
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| angel finance |
White & Black has developed a strong reputation for its advice to investees and investors in the field of venture capital and entrepreneurship. The firm is ranked in the top 15 firms in the UK in the field of “Private Equity: Venture Capital Investment” by the Chambers legal guide. We count amongst our clients one of the UK’s foremost venture capital funds (which provides finance to highly innovative start-ups), a number of VCTs, University tech transfer offices, many entrepreneurs and a number of government financed funds.
Venture capital requires both an in-depth knowledge of English company law and a genuine appreciation of the pressures faced by young businesses (particularly those which are operating in “stealth” or pre-revenue). White & Black ensures that its clients receive practical and cost effective legal advice focused on progressing the deal in a manner which has regard to the differing views which may be held by the various parties to the transaction.
White & Black advises on all aspects of venture capital and entrepreneurship, including:
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| early stage financings | |||
| startups | |||
| venture capital trusts | |||
angel finance
Angel Finance is the term given to investments made into early stage companies by experienced investors on an individual basis, known as Business Angels.
Business Angels fill an investment gap in that they operate above the level in the market at which the finance requirement of an investee company (and the associated risk) can be satisfied by ‘friends and family’ but below the level likely to be required to enable an attractive return to be delivered to an institutional investor.
An additional attraction of business angel investment is that the individual investing will often be able to bring some business experience to the area in which the investee company operates and may offer to mentor the founders or to sit on its board.
Key negotiations in a business angel investment tend to focus on minority protections such as anti-dilution, restrictions on expenditure, control of business plans and budgets and information rights. White & Black advises on all these aspects.
early stage financings
Early stage financings may take the form of a ‘friends and family’ funding round, a seed funding round with finance being provided from business angels (See: Angel Investments) or other high net worth individuals or a first institutional funding round, with funds perhaps coming from a venture capital house. The deal documentation in early stage financings frequently contains some of the hallmarks associated with private equity transactions (See: Private Equity) (such as drag-along and tag-along rights, liquidation preferences, investor director rights etc) and may envisage the Investors receiving a separate class of shares to the founders with preferential rights (such as the right to receive dividends at a set rate).
In an early stage financing the company will have either developed its product or a prototype, and will often be seeking funding in order to take the product to market. The investors in this round of funding will focus their attention on the company’s business plan, and how the funds raised are to be utilised by the founders. As a company seeking an early stage financing will often be pre-revenue, investors will seek to impose financial restrictions on the way the company is run post-investment (such as a restriction on capital expenditure, a limit on the salaries paid to the founders etc).
start-ups
Whether you are commencing a spin-out (See: Spin-outs), a joint venture or merely commercialising an idea devised between friends, it is important to ensure that the trading and corporate vehicle is formed and regulated in the correct manner from the outset. Particular consideration should be given to:
- which corporate structure offers the right balance of risk protection, tax efficiency etc (eg limited company, limited liability partnership, 1907 LP etc);
- when, to whom and how the interests in the vehicle should be issued and transferred;
- whether there is any pre-existing intellectual property which needs to be transferred into the new entity; and
- the division of responsibilities of those involved within the project.
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A Venture Capital Trust "(VCT)" is a tax efficient corporate vehicle; the first types of which were introduced by the UK government in the 1990’s to encourage investment in new businesses.
The tax breaks associated with investing in a VCT offer investors an incentive for investing in new companies which might otherwise have been perceived to be too risky.
The team at White & Black has specialist knowledge of the rules surrounding VCTs and can ensure that investee companies continue to satisfy the conditions for approval for a VCT (as failure to do so can retrospectively negate the tax breaks received by investors). We can advise both VCTs and their investees on these rules and on the terms of any investment by a VCT.