Lately, equity crowdfunding has emerged as a real and important alternative for growth companies to ensure access to the capital necessary to realize the business idea. This is of course an attractive option as the entrepreneur, in addition to funding, often gets a whole bunch of ambassadors, in the form of shareholders, who will spread the word in their networks.
It is, however, important that the entrepreneur takes a moment to evaluate how a crowdfunding can be structured to be as successful as possible to the entrepreneur, incumbent shareholders and the new investors. Such questions include:
Ownership structure: It may be tempting to keep the cap table as clean as possible by having the crowd investors exercising their ownership through shares in a SPV (Special Purpose Vehicle), e.g. a company with shares in the entrepreneur’s company as its only asset. This can facilitate the management of the company, i.a. by having a shareholders’ agreement with the SPV rather than each crowd investor. It shall thus be considered that the SPV as such must be administered and managed, and that the procedure for the investors’ to realize the proceeds from their investment is more complicated than when the shares are held directly in the entrepreneur’s company.
Influence: All shareholders have fundamental rights and influence in a Swedish limited liability company, but the entrepreneur often wants to maintain control over critical decisions for the business. A common solution is to allot series B-shares, with less voting power, to the crowd investors. The entrepreneur should also consider whether the crowd investors should be entitled to representation in the board of directors, to safeguard their interests in relation to the majority owners.
IR: Likely even more important than formal influence, is the fact that an informed shareholder can be expected to be a happy shareholder. The company should take into account that shareholder relations will take management time and ensure that it has the resources for this.
Exit strategy: A successful company will eventually be subject to some sort of exit. When structuring a crowdfunding campaign, the company should take into account the consequences in different exit scenarios.
At Synch, we assist companies in these and other legal and strategic questions in connection with a crowdfunding campaign. We would gladly meet up to tell you more. For further information, please contact Oskar Belani, email@example.com or +46 (0)76 176 19 15.