Legal Update: Growth Finance

Legal Update: Growth Finance COMMON INVESTOR CONCERNS Introduction of these being realised. From a legal on some level and will wish protections perspective due diligence will be necessary contained in the investment agreement The investor is looking for a return on the company’s ownership of assets. It to ensure that key decisions cannot be on its investment. The basis of its is increasingly important for investors to taken without the investor’s consent – investment decision will refl ect the assess the existence and protection of for example, any change in the nature risks associated with the investment intellectual property rights (IPR) within a of the business, or departure from the and the return it wishes to achieve. business, particularly in e-commerce or business plan or annual budget. The There are different considerations related applications. It is vital that all investors will ordinarily appoint a non- when investing in a start-up company IPR is vested in the company the subject executive director who will provide a and in an established business. While of the investment, and not retained by greater depth of experience as well as every investment is different there individual directors or shareholders who protect the interests of the investor in are issues common to almost all may have been the creators of the IPR the company. Care should be taken investments. in question, or by another associated to ensure a good “fi t” between the company. Much “intellectual capital” proposed non-executive director and A Good Idea Is Not Enough! or know-how is also inevitably held by the existing management in order to the executives themselves hence the secure the growth in value which both A good idea or a perceived market importance of service agreements to investors and management seek. for a new product or service is not ensure that these individuals are tied suffi cient. The investor’s main concern to the company. If any IPR is owned For further information please contact: is the quality and commitment of the by third parties, whether or not under George Frier 0141 303 7797 management team. A large part of common ownership, appropriate licence [email protected] m investor due diligence will turn on the agreements must be entered into and the management capabilities of the key signifi cance of exclusive/non-exclusive Stewart Whyte 0141 303 7795 directors and any weaknesses within arrangements analysed. In addition, swhyte @mcclurenaismith.co m the team from a fi nancial, technical are the rights granted in the UK only or Andrew Williamson 0131 272 8378 or other perspective. world-wide? awilliamson @mcclurenaismith.co m Investors will seek protection in Investor Protections Margot Forrest 0131 272 8403 the form of appropriate service mforrest @mcclurenaismith.co m agreements ensuring the commitment The main concern for an investor is to of the executive to the company. Such ensure an appropriate exit together with Or visit our website agreements will contain appropriate an income stream during the investment. www.mcclurenaismith.co m restrictive covenants preventing Investment funds are only generated GLASGOW competition if the executive leaves from successful exits and the investment 292 St Vincent Street the company and protect the agreement and articles of association Glasgow G2 5TQ DX: GW64 company’s interests in relation to prepared on behalf of the investor will T: +44 (0) 141 204 2700 confi dential information, and ensure include adequate controls on the conduct [email protected] exclusive attention to the company’s of the business and mechanisms to permit EDINBURGH business. The future of the investor is and facilitate the sale of the company. 3 P onton Street Edinburgh EH3 9QQ tied into the future of the executive These may include “drag-along” rights DX: ED135 in the company. to ensure that minority shareholders are T: +44 (0) 131 228 4994 required to accept the decision of the [email protected] The Importance of IP Protection investor as to the timing of an eventual LONDON sale. Equitable House 47 King William Street The investor will conduct fi nancial due London EC4R 9AF diligence on trading performance and Investors will almost always require to be DX: 764 CDE T: +44 (0) 20 7929 3770 growth prospects and the likelihood involved with the running of the company [email protected] This note is written as a general guide only. It is not intended to contain defi nitive legal advice which should be sought as appropriate in relation to a specifi c matter. McClure Naismith is the trading name of McClure Naismith LLP. McClure Naismith LLP is a limited liability partnership incorporated in Scotland with registered number SO301685 and having its registered offi ce at 292 St Vincent Street, Glasgow G2 5TQ. McClure Naismith LLP is regulated by both the Law Society of Scotland and the Solicitors Regulation Authority. We use the word partner to refer to a member of McClure Naismith LLP..

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