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We have a team of highly experienced growth company specialist lawyers who advise investors and also founders/current shareholders on investment transactions. Each situation is different so it is our experience of previous investment transactions and commercial experience which are as valuable to our clients as our legal acumen.
Having built up a business from the beginning the founders will be highly committed and motivated. External investment will often change the dynamic, especially where investors require a degree pf control going forward. Both investor and investee should carefully consider how to get the balance right to protect the investor whilst keeping the founders and key employees motivated.
Depending on the underlying situation, an investment agreement will typically be in the form of a share purchase agreement but will also generally require consideration/amendment of existing corporate documents such as a shareholder agreement and the company’s articles of association.
Investment in small and medium-sized enterprises often involves heavy negotiation and often a combination of different types of funding to balance risk and reward for both the business and the investor. Common structures include:
Equity investment - investors take a direct shareholding in the company, giving them ownership rights and potential dividends. This is often combined with preference shares to provide priority in repayments or exit proceeds.
Convertible debt or loan notes - start as a loan to the business, which can later convert into equity, usually at a discounted price or on predefined terms.
Simple loans or debt financing - traditional loans with interest provide downside protection for investors, particularly when combined with warrants or options that allow participation in future equity upside.
Commercial considerations will depend on the company’s stage, capital needs, investor appetite for risk. Well-drafted investment agreements define the rights, obligations, and exit mechanisms clearly to protect both the SME and its investors.
When deciding on whether to seek external investment, business founders and investors will also consider issues incluidng :-
Control – investors are likely to require significant ability to oversee and possibly even control certain aspects of the business, often including representation at Board level.
Exit – what is the investors likely exit timetable and plan? Does this accord with the founders plan?
Every investor agreement is different but key clauses will almost always include :-
Investment amount and consideration payable - defines the amount of investment, the type of consideration (equity, convertible debt, etc.), and the valuation of the company.
Investor rights - see below
Exit strategy - the terms under which investors can exit their investment, such as through an initial public offering (IPO), a sale of the company, or a buyback by the company.
Governance - matters such as the composition of the board of directors, executive compensation, and dispute resolution mechanisms.
Warranties and representations - warranties and representations about its financial condition, intellectual property, and other aspects of the business.
Covenants on the business - restrictions or obligations imposed on the company, such as limitations on debt levels or dividend payments.
Covenants from founders – whereby the founders and potentially other key employees agree to stay in the company, retain shares for a set period or under certain conditions and non-compete restrictions if they depart.
Board representation - investors can appoint directors to the board to ensure their interests are represented and to have a voice in strategic decisions.
Veto rights - allow investors to block certain actions, such as major changes to the company's business or structure.
Convertible loans – instead of a straightforward injection of cash in return for shares, a popular alternative is for investors to loan the business money on the basis that the loan can be converted into equity at a predetermined conversion price, providing investors with upside potential while offering the company flexibility in terms of repayment.
Control issues - Investors may seek control over certain key decisions, such as hiring and firing of senior executives, further borrowing or potential legal disputes the company becomes involved in.
Anti-dilution protection - protects investors' ownership percentage in case of future equity being issued by the company.
We advise both investors and SMEs on all aspects of investment agreements, ensuring that the deal structure, rights, and obligations are clearly defined and enforceable.
For investors, we provide guidance on:
Choosing the right mix of equity, debt, and hybrid instruments to balance risk and reward
Drafting robust terms for shareholder or investor protection, including exit rights, information rights, and anti-dilution provisions
Navigating regulatory and corporate governance requirements
For SMEs seeking investment, we help with:
Structuring the investment to protect existing shareholders while attracting capital
Negotiating fair terms that preserve control and flexibility
Ensuring compliance with company law and investor obligations
Whether you are raising capital or making an investment, we combine legal expertise with commercial insight to structure agreements that are clear, enforceable, and aligned with your strategic objectives.
Please do call or email us to discuss how we can help and to get to know us and whether we are a good fit for you.
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