Our tips to succeed your capital raising (3/3)

5 principles for a reasonable governance in the context of your capital raise
(to be included in the shareholders’ agreement):

1) Prefer:

  • Single class of shares
  • Board representation with a minimum threshold of 10%.
  • Observers on board if justified / needed

2) Accept

  • Usual minority rights (tag along / drag along / priority rights).
  • In terms of liquidity: at 5 years.
  • In terms of reporting: Accounting information and KPI tracking by quarter.

3) Avoid:

  • Complex legal structures (e.g. patents housed in a separate entity)
  • Limit the number of direct shareholders: if possible, group all shareholders holding less than 2% in a holding company.
  • Guaranteed minimum return clauses.
  • Priority exit clauses.
  • Tiered pre-emption clusters for founders / others.
  • Veto rights i.e. clauses disallowing sale to certain third parties.

4) Negotiate:

  • Partnerships with strategic investor (up to the most favored nation clause).
  • Anti-dilution clause for new entrants at 50% max within 24 months.
  • Protection and commitments of key managers / founders for a period of 18 months minimum.

5) Structure:

  • Board with credibility for subsequent rounds / exit.
  • Board with balanced profiles to avoid splits in the board into opposing camps.
  • Clear delegations to managers / executive committee.

 

Source: Alexander Partners