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Venture Capital

Venture Capital Complexity

.We advise both Venture Capital backed clients as well as VC funds. Employee share schemes for Venture Capital backed companies typically revolve around rewarding and incentivising growth in value and a future liquidity event.

Depending on the size of the business, funding history and share ownership structure many Venture Capital backed companies can fit into government approved schemes. However typically as the business matures the government approved schemes no longer work and these businesses tend to use unapproved options, growth shares or, increasingly, JSOPs.

 

Venture Capital Considerations

Venture Capital can be quite different from Private Equity as it is much more common for VC funds to take minority positions in their investments. And as a business matures it is not uncommon to find that it has multiple VC owners and multiple share classes which can create significant complexity from both a legal and valuation perspective as well as a governance perspective.

Unlike Private Equity where there is an expectation of a sale of the business within around 5 years of investment, VC investments can be much longer, and there is an increasing trend for businesses to stay private for longer rather than IPO. This can mean different share scheme design should be used than would be typical for a Private Equity backed business or listed business.

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How Pett Franklin can help

Over the years we have increasingly dealt with venture capital funds and supported them in incentivising the management teams in their portfolio companies.

We are well placed to advise and implement the well designed share scheme and as well considering tax implications can support in the understanding of the dilution associated with share schemes.