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FINANCE & INVESTING | 13.11.2018
At Invesdor, we like simple. I will take some time to illustrate this by explaining how we operate our own company structure.
A key element of our model is that we do not own shares in companies, whose rounds we organise. If we owned shares in a company whose equity offering we were organising, we would have an incentive in giving the company a higher valuation as the value of our shares would increase in our balance sheet. However, this would result in the new investors paying too high a price, which wouldn’t be fair.
Fairness is key, there we have decided that Invesdor does not invest in its target companies, period.
Some highly savvy investors are notorious for creating innovative new share classes with different rights. These innovations help the investors protect their interests, however for the company it oftentimes leads to really messy cap tables. Messy cap tables, in turn, create unnecessary challenges.
First of all, multiple share classes are just a hassle to manage because they exponentially increase the number of variables that goes into any AGM decision or dividend payment. Also, they can put off potential new investors because they look messy and difficult to maintain. What is worst, you have to unwind these share classes at the exit – one way or another. You rarely see companies listing with many share classes, although some (eg, Snap Inc.) have tried to pioneer this as of late.
Serious investors will not invest in shares which have no voting rights. Shares with no voting rights aren’t very attractive and can therefore be more difficult to offload. This creates a lot of hassle and the management of the target company will certainly get distracted with this. And again, if you plan to do an IPO, these shares will have to be converted to shares with voting rights.
We don’t have a holding company to contain all our investors, instead all our investors are shareholders in the parent company of the Invesdor Group. Their interests are secured as they will benefit of all business conducted under the Invesdor umbrella and it’s easy for us to manage. Why create complex and costly structures when you can manage with simple ones?
Timo, one of our founders and a lawyer by training, was at Invesdor’s founding given the task of creating an efficient shareholders’ agreement, but he was not paid for the task.
The end result was a three-page long, highly transparent minority shareholders’ agreement which has all the relevant clauses to give the board rights to decide over exits and next funding rounds, thus ensuring efficient operations. Ask yourself who benefits of massive contracts, and if it’s not your company or its shareholders, opt for something simple.
As Leonardo Da Vinci apparently once said: “Simplicity is the ultimate sophistication”. Corporate finance ought to try it.
We at Invesdor want to make participation in finance easy and fair for everyone. If you want to have our help with valuation and fundraising, please click below to get in touch with our deal flow team.
The information contained herein is not meant to be, and it shall not be interpreted as investment advice or a recommendation and investors must neither accept any offer for, nor acquire, any securities unless they do so on the basis of the information contained in the applicable investment material of a target company. Investing in securities of unlisted companies is associated with high risk.