Each company wishing to list their funding proposal with LeadAngels must have a commitment from a lead investor towards the funding round. Funding proposals without a commitment from a lead investor will not be considered for further review. It is the lead investor who negotiates the terms and valuation for that particular funding round which will then be made available to LeadAngels members.
The lead investor can be an individual, organisation or syndicate and is not necessarily the largest capital contributor to a funding round although this is usually the case. Instead the lead investor is charged with coordinating the funding round and handling the negotiations. The negotiations between the lead investor and entrepreneur must be concluded and a term sheet drafted before the funding proposal can be listed with LeadAngels.
All stages of a funding round require legal supervision, from negotiation, structure and execution to the issuance of share certificates and other post execution procedures. Before a funding proposal is listed with LeadAngels the entrepreneur and lead investor must enter into a legal engagement supervised by a lawyer. LeadAngels has negotiated discounts with legal partners from a wide geography and these partners are available to assist with the legal process if the lead investor and entrepreneur have not yet appointed a representative.
The way a company is structured and its place of incorporation influences its ability to raise funds. Investment legislation differs greatly across borders and investors need to know that their rights and investments will be protected. Loopholes in a corporate structure can be exploited by an entrepreneur against the interests of investors so it is essential that the way a company is structured along with its place of incorporation are in the interests of both investors and entrepreneur.
Most businesses seeking funds opt for an offshore umbrella structure whereby existing ownership and new investment is in a parent company registered in an offshore jurisdiction such as Cayman or British Virgin Islands, whilst the day to day operations are conducted through a subsidiary or affiliated company. This enables the businesses to act effectively at a local level or wherever their markets may be, whilst avoiding potentially burdensome investment restrictions associated with such markets.
A special purpose vehicle (SPV) is a company that is created by investors and entrepreneurs to facilitate financial transactions. It is not a regular company in the sense that no goods or services are marketed and it requires minimal management. An SPV is usually owned by a charitable trustee for the purpose of legally separating it from the company or companies in which it invests. Lead investors and companies wishing to register their proposals with LeadAngels can utilize SPVs to receive investment from LeadAngels members and to effectively coordinate those investments post funding.
The lead investor will prior to making a funding commitment instruct a lawyer to carry out a due diligence report on the company seeking funds. The report will include an analysis of the legal structure of the company, checks on whether the company has filed necessary reports to government or other regulatory bodies and checks on whether the governing documents contain clauses which may cause obstructions.
Both the lead investor and the LeadAngels investment team will conduct non-legal due diligence checks on the company accounts and governance. Company account considerations will include whether or not the budgets and forecasts are reliable and realistic, the financial viability of the company and solvency based on trends in income and expenditure. Governance considerations will include background checks on management team, how the management team is structured, how the team coordinates and communicates, and the general effectiveness of the team.
By the time the funding round is ready to commence the following has taken place:
Each funding proposal contains a funding target, amount of equity on offer, valuation, lead investor profile and funding commitment, proposed use of funds, past financial statements and forecasts.
Non financial details include a summary of the business, team, sector and market and supporting documentation.
LeadAngels members can register for shares whilst the funding round is live by stating their investment amount although transaction only occurs if the minimum funding target is met after the funding round has concluded. To register for shares LeadAngels members must pay a deposit on their investment amount which is held for the duration of the funding round. Deposits are refunded in full if the minimum funding target is not met.
Investors must be LeadAngels members in which case they have self certified as a High Net Worth Individual or Sophisticated Investor and are over the age of 18. Depending on the company legal structure and place of incorporation, investors of certain nationalities may be prevented from investing.
The total amount raised at the end of the funding round is equivalent to the total value of shares for which LeadAngels members have registered plus the original commitment made by the lead investor or investors. This figure is always stated in USD regardless of where the company is based. If this figure is less than the minimum target set by the entrepreneur there will be no transaction and all deposits will be refunded in full to LeadAngels members. The funding proposal will be removed from the website and LeadAngels will have no further contractual obligations towards the company.
If the total value of shares for which LeadAngels members have registered plus the original commitment made by the lead investor or investors is equivalent or greater than the minimum funding target set by the entrepreneur, the process will continue to the next stage. LeadAngels members who have registered for shares will be required to transfer the balance of their total investment amount (value of shares for which a member has registered minus value of deposit paid at the time of the investment pledge) into a legal escrow account.
A legal escrow account is an account controlled by a third party, in this case a law firm, until certain minimum criteria are met after which control is handed over to the owner, in this case the company raising funds. The purpose of the legal escrow is to accumulate funds from investors whilst relevant investor documentation is prepared before the funds are then handed over to the company.
The minimum criteria which must be met before control of the escrow account is handed over to the company raising funds includes the following:
If less than 80% of the investment pledges are realised into the legal escrow account the funding round will be discontinued. Investors who have transferred the balance of their investments into the escrow account will have their investments and deposits refunded in full. Investors who have failed to transfer the balance of their investments into the escrow account will lose their deposits.
Following a successful fundraising shares will be issued to investors. The timing will vary depending on where the company is incorporated as procedures differ amongst jurisdictions. Relevant resolutions will be drafted by a lawyer and the share certificates checked.