Investment Structure The price the investor pays for their shareholding proportion is a critical commercial term that will likely be subject to negotiations. Entrepreneurs usually aim for the highest cash input for the least shares, while investors seek a fair share of the equity and other share capital. The ultimate valuation depends on an assessment of the company’s prospects, which involves considerable uncertainty and risks. […]
Overview The primary agreement in a venture capital investment comprises a shareholder’s subscription or investment agreement, delineating the future operation of the company during the investment period. This process is similar to that applied when purchasing a private company—refer to the section on share purchase agreements. The agreement may specify the application of the subscription fund, sometimes mandated for specific purposes as a precondition. The […]
Nature of Venture Capital Venture capital represents long to medium-term finance, primarily directed at high-growth potential companies for substantial capital growth over a period. Returns typically come from capital growth rather than long-term holding and dividends. The investor will usually seek to liquidate its investment within a number of years, commonly three to five. Due to its nature, venture capital entails high risk, consequently demanding […]
Drag Along and Tag Along The most commonly found mechanisms for exit are so-called drag-along and tag-along rights. In the case of a drag-along right, a party shareholder who wishes to sell its interest to a third-party has the right to require other shareholders to join in the sale to a third-party on the same terms as it sells for that. The objective is to […]
Realising Return The venture capitalist’s objective is to realise its investment. Generally, it will require a relatively high capital profit to compensate for the risk, time, and other resources associated with the financial investment. The initial investment will contemplate a timeline and horizon for realization. It may be between two to three to seven to ten years. Obligations may be provided in the agreements to […]