Continuing the conversation…on Faster Close

After each GBx member-only event we’ll include a summary of the burning questions during the session. Respecting the confidentiality of those in the room who shared their stories we aren’t able to offer a detailed transcription. However you can continue this conversation with our members on the Members Forum.

In the room we had experience of closing 100s of fundraising rounds on both sides of the Atlantic. A round doesn’t have to take months to close out – with the right preparation, planning and resources it can complete in weeks. So what drives the schedule and what is within a British entrepreneurs influences to bring in the time-frame to this mythical weeks rather than months? With legal expertise, and representation from investors as well as entrepreneurs in the room, we explored the questions below.

Key questions:

  • What are the trends in cross border financing?
  • Is “The Flip” needed to access trans-Atlantic funding?
  • How can you speed up the process?
  • How can you de-risk the process for both investors and entrepreneurs?

What are the trends in cross border financing?

  • More US direct investment in Europe – funds have more experience of the UK/European market, diminishing the need for “the flip”
  • Increasing consistency between US and UK investment terms – US funds can obtain the same key commercial and legal terms in UK investments as they can in the US (even if the underlying documents look a little different)
  • The impact of the rules limiting foreign ownership in US firms is an area to watch– regulation is changing under the current US administration

The Flip

  • “The Flip” in this context refers to moving from a UK to US top corporation – “flipping” the jurisdiction of the company into which the investment is made to the US
  • n the past the flip was seen as a necessary step for UK entrepreneurs/companies fundraising in the US – a contributing reason for doing this was that it was considered to make the process easier / faster for US investors
  • In the last 18 – 24 months TW has seen an increase in UK entrepreneurs/companies who have raised funds from US funds/investors without having to undertake a flip
  • Factors discussed
    • Stage of company (later the stage, the less straightforward a flip)
    • Competitiveness of investment round/balance of commercial power
    • Increased experience of investors in European investments and markets
    • Adverse tax implications for existing investors (SEIS, EIS) if flipped

The players

  • VCs – to what extent do they have experience (and therefore comfort) investing in the relevant geography / sector / stage of round. What’s the life of the fund and capacity to invest further?
  • Lawyers – as above. Are they used to working with VCs and entrepreneurs at your stage
  • Entrepreneurs – pragmatic approach to terms and negotiation

How can I speed up the process? What are the key issues?

  • With experience in the deal team, terms can be agreed in a matter of days. The main focus then becomes due diligence
  • Review an example long form due diligence request list before the process starts to begin to understand the types of information/questions that are likely to be requested/asked.  Plan for dealing with known issues within your business and likely “hot topics” (such as IP ownership)
  • Books & records
    • Create a virtual due diligence deal room to store and make available documentation
  • Think big and commit big: UK entrepreneurs need to commit to the longer term goals / pipeline numbers
  • De-risking the investment
    • a company with a proven product/sales is inherently less risky for an investor
    • be able to demonstrate clear ownership of key revenue generating intellectual property/other assets
  • Take advice around terms which are worth fighting for (or not) from advisers well versed in the sector
  • The more that can be agreed “up-front” in a term sheet, the fewer issues that should arise as the legal documentation is finalized
  • CEOs/Founders should be available/carve out dedicated time to deal with the material issues that need their input (don’t under-estimate the time commitment) and have good support in place to deal with the more mundane matters rather than try to do it all themselves alongside the “day-job”

For more information contact Mark Barron (Taylor Wessing) & Daniel Glazer (WSGR)