Private Equity & Venture Capital

The team advises on investments from early stage seed investments up to multi-million private equity backed management buy-outs. Recent transactions the group has advised upon include advising BGF on a number of investments and buy-outs, advising Earth Capital on investments in clean sustainable technology businesses, advising funds managed by FSE Group on a number of venture capital investments and advising a fintech specialist investor on a number of significant investments.

1. What is venture capital and how does it work?
   Venture capital is money invested by angel investors and/or investment funds in young businesses that are expected to grow quickly. In return, the investor receives a share of the business or may make a convertible or non-convertible loan. Investors may also offer advice and support. They usually make their return when the business is sold or lists its shares on a stock market.
2. Is venture capital right for my business or should I consider other funding options?
   Venture capital may suit a business that has the potential to grow quickly and needs access to capital to fund that growth. However, it is not the only option. Depending on the stage of the business and how much ownership the founders are willing to give up, alternatives may include a loan or using the business’s own money.
3. At what stage should a company consider taking venture capital investment?
   Often a company will consider venture capital once it has shown that its idea works, has attracted some customers or made early sales, and has a clear plan for growth. Notwithstanding and often the business is not yet turning a profit. However companies may also take on VC investment for set-up purposes (pre-seed).
4. What do venture capital investors typically look for in a company?
   Investors will typically look for a strong management team with a realistic business plan for growth and a business concept the investors believe in. For many angel investors the ability to invest with SEIS or EIS tax treatment will be important given the associated tax advantages.
5. What does the venture capital investment process involve?
   The process usually starts with early discussions between the company and investors. They then agree the main terms for the investment (type of share/loan, price per share and any other commercial terms such as information rights, consent rights or director/observer appointment rights), the investor may carry out due diligence on the company, and the legal documents are negotiated and signed. Once this is complete, the money is invested.
6. How long does a VC fundraising round usually take?
   A fundraising round can take anywhere from several weeks to a few months. The timing depends on how complicated the deal is, how many investors are involved, and how long the checks and negotiations take.
7. What legal documents are involved in a VC investment round?
   The main documents usually include a term sheet setting out the key deal terms, an investment or subscription agreement, a shareholders’ agreement, and updated articles of association. Depending on the value of the raise it may be possible to simplify the documents to as little as a share subscription letter.
8. Do you advise both companies and investors?
   Yes. We advise both businesses seeking investment and investors providing it. This means we understand the process from both sides, can spot possible issues early, and can help everyone work towards a fair and practical result.
9. How early should we speak to you if we’re planning a fundraising?
   It is best to speak to us as early as possible, ideally while you are still planning the fundraising. We can help you consider and understand the terms of the raise/investment, help organise the process and deal with legal issues before they cause problems. Starting early can reduce delays and help the business feel ready when speaking to investors.
10. What are preference shares?
    Preference shares are a class of shares that give investors certain rights or preferences over ordinary shareholders. In a venture capital context, they are often used to give investors priority on a return of capital if the company is sold or wound up, and may also include a right to be issued additional shares if the company undertakes a fresh raise at a lower price (known as an anti-dilution right). The exact rights depend on the company’s articles of association and the investment documents.
11. What is an advance subscription agreement?
    An advance subscription agreement, often called an ASA, is an agreement under which an investor pays money to a company now in return for shares to be issued at a later date, usually on a future funding round. It can be useful where the company needs funding quickly but is not yet ready to agree a full priced round. In the UK, ASAs are commonly kept simple, with no interest and no repayment right, particularly where SEIS or EIS tax treatment is relevant. A longstop date for issuing the shares is usually included.
12. What is a convertible loan note instrument or agreement?
    A convertible loan note instrument or agreement is a debt document under which an investor lends money to the company, with the loan intended to convert into shares when a specified event occurs, such as a future funding round, sale or maturity date. Unlike an ASA, a convertible loan note is usually treated as debt before conversion and may carry interest or a repayment right. It is often used as bridge funding where the parties want more flexibility than an immediate share issue, but it may be less suitable where SEIS or EIS relief is important.
13. What is a SAFE?
    A SAFE, meaning a simple agreement for future equity, is a short investment agreement under which an investor provides money now in return for the right to receive shares later, usually on a future priced funding round. It was originally developed in the United States and is designed to be simpler than a convertible loan note because it is not intended to be debt, does not usually carry interest and does not usually have a repayment obligation. In the UK, SAFE-style documents need careful adaptation to fit UK company law and tax considerations, and an ASA may sometimes be preferred where SEIS or EIS treatment is relevant.
14. What is the difference between private equity and venture capital?
    Private equity and venture capital are both forms of private investment where investors provide capital in return for an ownership stake in a company. The main difference is the type and stage of business they usually invest in. Venture capital typically focuses on early-stage or high-growth companies that may not yet be profitable but have the potential to scale quickly. Private equity usually focuses on more established businesses with proven revenues or profits, often where the investor is looking to support expansion, improve performance or prepare the business for a future sale. Venture capital investors usually take a minority stake and expect higher risk and higher potential returns, while private equity investors may seek a larger or controlling stake and often take a more hands-on role in the business.