Venture Capital Lawyer London

Whether you are the founder of a new business seeking seed funding, an investor considering a substantial investment or part of a management team looking to undertake a management buyout, and looking for a venture capital lawyer in London, our corporate team can assist you.

If you are looking for a venture capital lawyer in London, Waterfront advise both entrepreneurs and investors on venture capital transactions ranging in size and complexity from modest seed and start-up rounds by friends, family and business angels to multi-million pound development and growth capital rounds by institutional investors.

Examples of the types of matters that we advise on are:

• Pre-due diligence audit
• Deal structure
• Pre-contract documentation (including confidentiality agreements and heads of agreement)
• Due diligence
• Investment documentation (including investment agreements, disclosure letters and articles of association)
• Employment law issues (including service agreements)
• Post-completion matters

A large proportion of our client base are Small and Medium Sized Enterprises (SMEs).  We also assist with venture capital funds where investments range in size and complexity from pre-due diligence to post completion.

The Investment Cycle

As a guide for your business, we have set out below the general stages of the investment cycle. Our venture capital lawyers can guide you through this process.

Stage (1): Invention/Idea

The original idea – where it all begins.  This is the idea or invention that you all came up with or were inspired by which made you start or join the business you are currently in.

Stage (2): Discovery

This is when the idea or invention needs to be tested.

In doing this, you test assumptions about problems customers may have and customer needs.

Investment at this stage is mainly from the founders putting in their own money into the business themselves.  This is simply because it is likely to be too early to attract external funding.

Stage (3): Validation

The purpose of this stage is to confirm that people/customers are interested in the idea – i.e. that there is a market out there for the idea

Types of investment common at this stage:

• Grants – various different grants available for SME businesses, depending on the industry. Most grants will have eligibility criteria that will need to be met.
• Accelerators – usually offer a small investments and access to a large mentorship network (and office space) to assist in building a business. Sometimes (but not always) this is in exchange for equity in the business.
• Friends and family
• Potentially key customers – these are potential customers who are looking for a business solution that they do not necessarily want to develop in-house

Stage (4): Launch

At this stage, demand begins to build and customer base increases. Seed funding is the type of funding most applicable to this stage. Seed funding is an early stage investment in exchange for equity in the business

Types of seed funding:

• Angels– there are a network of high net worth individuals who invest in small start-ups in exchange for equity in the business. There are various tax incentives for such investments to make these investments more attractive
• Crowdfunding – this method raises typically small amounts from a large number of contributors. A business can be put on an industry specific platform where contributors can select which funds to invest in

We work with a number of crowdfunding businesses and can make introductions.

Stage (5): Growth

This stage is where the business needs to drive growth and execute business models. At this stage the most common investment is venture capital funds. Venture capital funds are a type of investment fund. They manage the money of investors seeking equity in SME’s.  Individuals will invest into a fund and then the money in the fund will be invested into SME’s

Being Investment Ready

We have further explained below some key items that you will want to consider when preparing your business for investment.

Deal Structure – the three main types of structures that are set up are:

1. Limited Company
2. Partnership
3. Sole trader

A limited company is the most common and recognised way of setting up a business. Each Waterfront venture capital lawyer can assist in setting up your structure.

Pre-contract documentation – Waterfront’s venture capital solicitors can guide you through the process involving discussing and agreeing all of the terms and conditions of the investment.  This is typically done through what we call an “Investment Agreement”.

Due diligence – this is broadly, an investigation or audit of a business by an investor to confirm important facts about the business.

Investors will typically be interested in:

• Who owns the business
• Who has authority to sign on behalf of the business
• The financial accounts of the business
• Material contracts
• Identifying any intellectual property that the business relies on
• Employees and consultancy arrangements
• Taxation
• Whether there’s any litigation or disputes that might impact the value of the business
• Identifying any properties in the business
• Other assets, debts and stock and inventory

Completion –  there are legal formalities necessary to conclude the transaction. Typically, for a company this involves:

• A board meeting of the directors of the SME being held to approve the registration of the transfer of the target shares to the buyer and various other ancillary matters.
• Each party signing completion documents and any other completion deliverables to the other party.
• Most importantly, the buyer paying the purchase price.

Registration and filing – There are always a number of post-completion tasks that need to be dealt with or co-ordinated by the parties’ lawyers.

Legal Documents

There are a number of legal documents that you will likely need to enter into or have in place.  Some are mentioned above and our venture capital lawyers can assist in this respect as we deal with these documents on a day-to-day basis and so more than happy to give you a steer on how best to navigate them after the session.

Key Terms

Class of shares (including ordinary or preferred):

Some investors may want preferential treatment for their investment.  One way to achieve this is for the company to create and issue a new class of share, which attach certain additional rights as compared to ordinary shareholders.  Some of the types of special treatment investors may wish to be granted is typically around priority of return on their investment.

Warranties:

You will be asked to provide a suite of “promises” about the business.  These promises will be about the areas that investors are particularly interested, namely the list as described for due diligence above.

Board representation:

Venture capital investors will typically require that they have representation at the board level.  The reason for this is two-fold:

• firstly, to ensure that they are better informed about the goings on of the business; and
• secondly, to ensure that they involved in making important decisions about the business.

Information rights:

In addition to having a place on the board, VC investors will typically also require additional information rights.  This will generally translate into requiring the company to provide it with regular updates as to the financial performance of the company and an express obligation to inform it of any fact or circumstance that transpires that could threaten or jeopardise the viability of the company moving forward.

Veto rights:

VC investors may also require what we call “veto rights”. These are rights in relation to agreed matters that require their approval before the company and/or shareholders can proceed with such things. These may include such things as:

• issuing more shares;
• entering into or terminating material contracts;
• taking on debt outside of the ordinary course of business, etc.

Good leaver/bad leaver:

This is something that founders in particular need to focus on.  Good leaver/bad leaver refers to when founders effectively agree that their current shareholding will vest over a period of time.  The purpose of this is to incentivise such founders to continue doing what they are doing.

In situations of a “bad leaver”, then, a founder might find itself losing some or all of its shares.  These situations typically include where such founder is terminated for gross misconduct and can also include where they simply decide unilaterally to leave the company, irrespective of the reason why.

There is, of course, situations where it would not be fair for a founder to lose its shares if it had to leave the company for reasons outside of its control.  Obvious example would be for medical reasons (or death), or simply where both the investor and founder agree that such a departure would be in the interests of the company.

Be Investment Ready: Tips

Seek professional advice early on:

• Putting it off to save on costs can be a false economy.
• Difficult to renegotiate terms once signed. Ensure you fully understand what you’re signing up to.

Get in touch with a Waterfront venture capital lawyer in London to prepare your business before approaching investors (by doing some due diligence on yourself):

• Share capital
  • Do you have a register of members?
  • Are your Companies House filings up to date?
• Intellectual property
  • Does the company own the IP that is material to its business?
  • Is the company’s IP properly protected?
• Employees
  • Do you have employment contracts in place?
  • Have you promised anyone options/shares?

For information about recent deals we have advised on please see our corporate deals page or get in touch with our venture capital lawyers below.