Venture Capital
A form of private equity and a type of financing that provides early-stage funding to start-ups and small businesses that are believed to have long-term growth potential
An Increasingly Popular Asset Class
The main upside for clients is that they usually get equity in the company, and, thus, a say in company decisions and directions. Most early-stage investors (angels) are successful professionals and entrepreneurs who have amassed wealth through a variety of sources.
Our Process
The first step, for any opportunities that HAS considers, is to carefully analyse the business plan. If interested in the proposal, we will perform due diligence, which includes a thorough investigation of the company's business model, products, management, and operating history, among other things.
Our team has extensive experience in company analysis. Once due diligence has been completed, we will pledge an amount of capital in exchange for convertible debt and/or equity in the company. These funds may be provided all at once, but more typically the capital is provided in rounds. We take an active role in the funded company, advising and monitoring its progress before releasing additional funds from ourselves or from our institutional and private clients.
Convertible Loans
A convertible loan note (also known as a convertible note, or CLN) is a type of short-term debt that is converted into equity shares at a later date. Making an investment into a start-up via a convertible loan note typically allows the client to receive a discounted share price based on the company's future valuation.
Capital placement into a company via a convertible loan note (CLN) is not for equity initially. However, it is a loan to the business that has the option or requirement to convert to equity shares at a price that is yet to be determined. The valuation is not usually defined when the investment is made. It is usually also possible for the loan to be repaid in certain circumstances including any coupons.
Conversion into equity occurs on the next qualifying funding round or when a certain date or duration is met. What is classed as a qualifying funding round will be set out in the terms of the Convertible Loan Note.
Conversion Price
The price per share that will have a maximum share price stipulated in the term sheet. Shares may be issued at the lower of the max share price or a discount on the next qualifying funding round.
Exit Strategy
Typically, HAS works with convertible loan notes before establishing a Series A funding round for an exit strategy for the loan note holders. The timeframe and yield for convertible loan notes can vary depending on the company in question.
Coupon Repayment
There is a longstop date by which the investment must be converted into shares. If the company has not reached the funding target set out in the term sheet to trigger conversion by the longstop date, the investment plus any interest is repaid in full. There may also be other causes for default set out in the term sheet or it may be chosen by the investor upon conversion.
The coupon is the amount of interest that accrues while the loan note is unconverted. This is set out in the term sheet and may accrue daily, monthly, or annually. The interest is added to the amount of capital paid on the outset and on conversion the total will be converted into shares.
Liquidation Preference
A liquidation preference is a key and common part of a term sheet. It ensures that if a company exits with a lower valuation than expected, the company's preferred shareholders and convertible note holders (i.e., the clients) will receive their money back before other shareholders receive proceeds from the exit.
Funding Round
In the event of a sale of the company before a conversion event, usually the company will issue a conversion notice and a redemption notice for clients to decide which to opt for. Please note, each CLN will have different terms around this, and it is important to check the term sheet in each case.