Term sheet
Valuation, amount, the instrument used, governance, liquidity clauses: the letter of intent is not binding in principle, but it sets the framework that the final negotiation almost never calls into question.
A minority investor has only two protections: what they obtained in the shareholders’ agreement, and the quality of their relationship with the founders. The valuation, on which the whole discussion concentrates, determines neither their ability to get out, nor their access to information, nor their right to weigh on the structural decisions.
We advise business angels and private investors in the region on the stakes they take, from the first conversation with the founders through to the sale of their shares.
Valuation, amount, the instrument used, governance, liquidity clauses: the letter of intent is not binding in principle, but it sets the framework that the final negotiation almost never calls into question.
Checking ownership of the technology and of the trade marks, the structural contracts, employment compliance and tax liabilities: a few days of review avoid years of holding shares in a company whose assets do not belong to it.
Periodic information, a veto over the structural decisions, anti-dilution, pre-emption, tag-along, drag-along, buy-back clause: it is these clauses, and not the price, that determine the final return.
Liquidation preference, priority dividend, enhanced voting rights, conversion: preference shares make it possible to adjust the risk-return balance precisely without changing the headline valuation.
Investing directly or through a personal holding company changes the tax treatment of capital gains, the capacity to reinvest and the passing on of the portfolio. The choice is made before the first investment.
The proceeds of a sale contributed to a holding company may qualify for deferred taxation, provided they are reinvested on precise conditions and within precise time limits. Investment in young companies is one of the qualifying uses.
General meetings, committees, exercising information rights, reacting to a new dilutive round or to difficulties: a shareholding has to be watched, failing which the protections negotiated serve no purpose.
Selling the shares, exercising the tag-along clause, buy-back by the company or by the founders, sale of the portfolio: the exit must be organised on the way in, because it can no longer be negotiated at the moment it is needed.
The right moment
A liquidity clause negotiated on the way in costs an hour of discussion. The same request, made five years later to founders who have no interest in selling, carries no weight at all.
The subject is the same. It is when it is dealt with that makes the cost.
How we work
You set out the situation, we say frankly whether we are the right people and what the work would involve. No commitment at this stage.
It describes what is done, what is not, the basis on which fees are calculated and the timetable. Nothing starts without your written agreement.
One lawyer holds your file; each question is dealt with by whichever of us handles it every day. You have only one person to call.
Formalities, filings, deadlines: the firm takes over and keeps you informed until the file is closed.
Frequently asked questions
Investing directly gives access to the tax reduction schemes on entry, and the capital gain is taxed under the rules for individuals. Through a holding company subject to corporation tax, gains on the sale of qualifying shareholdings benefit from a favourable regime and the proceeds can be reinvested without immediate friction. The choice depends on the horizon and on the number of investments envisaged.
At the very least: effective periodic information, a veto over the structural decisions, an anti-dilution clause, a full tag-along right if control is sold, and a liquidity mechanism at a set date. Without that last point, the investor remains a prisoner of their shareholding.
A clause guaranteeing that the investor recovers their investment first, sometimes multiplied, out of the sale price, before the balance is shared out. It changes the division radically when the company sells below the initial hopes — that is, in most cases.
It protects against a later round carried out at a lower valuation, by adjusting the number of shares the investor holds. Its effect depends on the formula chosen, from the full ratchet to the weighted average, whose consequences for the founders are very different.
Yes, through convertible bonds or subscription warrants, which put the question of valuation off to a later round. These instruments are common at seed stage and call for rigorous drafting of the conversion terms.
Whatever the shareholders’ agreement provides for. The general law gives a minority shareholder only limited annual information. Monthly or quarterly reporting, with access to the accounts and to the budget, is obtained only by contractual negotiation.
Only through the mechanisms provided for in the shareholders’ agreement: an undertaking to buy at a set date, a buy-back clause, a drag-along triggered from a given date, or an organised sale process. With no such clause, a minority shareholder has almost no means of forcing liquidity.
Practice areas involved
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