// PREDICTIVE INTELLIGENCE //
Zickie Lim , Partner and Head of Venture Capital
Investments , Mills & Reeve of funding during their lifetime . Most start by raising a modest amount of seed investment to move their business to its next phase , by which time founders can negotiate a better valuation for a more significant funding round . Alphabet share classes ( A shares , B shares , C shares etc .) are the most common structure for subsequent funding rounds . The shares for each successive round typically include a right for that class of shareholder to receive their money back ahead of the holders of the earlier share classes . This is also known as ‘ preference stacking ’.
This approach to start-up financing encourages management teams to use funds invested in their company to increase the value of the business ahead of an exit event . The idea is to create sufficient value to ensure all investors get their money back by the time an exit happens – as well as give management and founders ( who usually only hold ordinary shares ) a chance to share in the proceeds of the sale or exit return of capital .
Quasi-equity : convertible loan notes and ASAs increased interest in investment instruments that enable investors to provide bridge financing while deferring the all-important valuation question .
Convertible loan notes are just one example of this . These are loans granted to start-ups that , in certain circumstances , convert into equity , often at a discounted price and often during the business ’ next equity funding round . Discounts are up for negotiation but tend to be between 15 % and 30 %.
Advance subscription agreements ( ASAs ) work similarly . Investors advance money to a business , which applies the funds to subscribe for shares once a pre-agreed trigger event happens , such as its next funding round . Some ASAs also build in a discount on the subscription price for shares at a similar level
While equity investment remains popular , in the current economic climate , we ’ ve also seen
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