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Dan Visoiu - Receiving an Investmet: StartUps Legal Procedure


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This is the workshop material Dan Visoiu, President of the VentureConnect Foundation, presented for RoNewMedia 0.6 workshop.

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Dan Visoiu - Receiving an Investmet: StartUps Legal Procedure

  1. 1. RoNewMedia PRESENTATION Dan Vişoiu17 May 2012 Biriş Goran SCPA 77 Emanoil Porumbaru Street, RO-011424, Bucharest T +40 21 260 07 10, F +40 21 260 07 20
  2. 2. Banks v. Business Angels• The golden rule is that banks seek to minimize risk and thus always request collateral• Banks also generally aim for returns of up to 5 - 6% per annum• Banks usually focus on loans for working capital purposes, etc.• Business angels generally accept to undertake much greater risk without collateral• Meaning that business angels are seeking much higher returns on investment, such as over ten times the initial investment over a five year period 2
  3. 3. Business Angels vs. VCs• Business angels typically invest own funds, whereas venture capitalists (VCs) usually manage pooled funds in a professionally-managed fund• Generally speaking a venture capitalist is a professional investor -- she or he manages a fund and is looking for suitable investments for that fund -- whereas an angel investor is an individual who, while also looking for a suitable investment, is also looking for a personal opportunity• In other words, the venture capitalist may have no business experience applicable to the industry the target company is involved in, and is focused on the potential rate of return the target company can provide -- an angel investor often has business experience relevant to your company and is interested in adding value to your company, as well as making a return on his or her investment. 3
  4. 4. VCs vs. Private Equity• Private equity funds are investment companies that, as a rule, do not hold publicly-traded securities. Instead, they normally seek equity stakes (that is, partial ownership) in private companies. They also may invest in so- called private placements of securities from public companies. That is, securities that are not offered to the general public or traded in the public securities markets. Venture capital is a specialized subcategory of private equity -- with the invested amounts usually being far less. 4
  5. 5. Other key characteristics of private equity are:• Private equity investments combine the provision of capital and expertise i.e., management expertise, strategic direction, and other value added services are provided along with capital;• Private equity investment entails active involvement in identifying the investment, negotiating and structuring the transaction and monitoring the company once the investment is made. This often requires serving as a board member of the company;• Private equity investments are not intended to be held indefinitely. Generally alternative exit strategies are evaluated at the time the initial investment in the company is made. One such strategy would be to take the company public and sell the shares into the public market. 5
  6. 6. Current Trends• Crowd funding – raising of funding through Internet (i.e., want to raise EUR 50,000 thus post announcement & project/business info and once pledged / escrowed amount exceeds target then funds released to entrepreneur – see• Series A (first significant round of financing) & Series B (usually for expansion purposes once management team in place)• Mezzanine financing -- basically a hybrid of debt & equity financing w/ a higher interest rate and right of lender to convert loan into equity if no timely repayment)• IPOs – initial public offering (meaning list of shares for first time – up to 20 – 25%) – see Facebook example (388 million shares being offered) 6
  7. 7. Trends in Romania• multiples have come down considerably since 2008• rule of law becoming more established• business environment becoming increasingly more transparent (i.e., Competition Council has become very active and thus has started to eliminate unfair market practices which have long plagued Romania• Romania is in better financial shape than many EU member countries, especially its Central and East European neighbors 7
  8. 8. VentureConnect Explained (• a platform to bring investors (Romanian and foreign) directly together with Romania-based entrepreneurs• foreign investors who have access to tens of millions of Euros become more comfortable with Romania and Romania-based entrepreneurs• entrepreneurs gain valuable experience, insight and know-how as well as contacts• overall objective is to create an “ecosystem” whereby Romania-based entrepreneurs have the necessary knowledge to launch and grow a global business 8
  9. 9. Romania’s Potential -- Increasingly Becoming a Target for VCs• the famous “potential” joke• current GDP still way below EU average (in fact less than half -- EUR 11,000 v. EUR 24,000)) thus still plenty of room for economic growth• although EU funds absorption has been low, nonetheless over the next 10 years Romania will have access to tens of billions of Euros from the EU 9
  10. 10. And Entrepreneurs Need to Become More Knowledgeable and Fast• hire experienced advisors: remember “you get what you pay for”• increasing use of terms sheets / MOUs / letters of intent• increasing use of off-shore structures for corporate governance purposes (to ensure applicability of such rights as tag-along, drag-along, buy-me buy-you, liquidation preference rights, etc.)• increasing implementation of “vendor due diligence” procedures to reduce transaction duration• use “auction-type” sale strategy 10
  11. 11. And Romanian Decision-makers Need to Eliminate the Excessive “Bureaucracy”• trade registry should be only an archiving & information institution (i.e., considerable current delays in transferring SRL participation to new shareholder, spin-offs, mergers, etc.)• laws especially fiscal legislation needs to really become entrepreneur-friendly (current VAT number registration procedure takes around 15 days)• reform the social contributions (CAS) system -- set a maximum yearly amount• build a freeway infrastructure and modernize rail infrastructure• take advantage of local skills such as fact that most young Romanians speak English (i.e., create a “holding company” regime which would create entire services industries (so-called “back office” services) and tens of thousands of white collar / office jobs 11
  12. 12. CONTACT: Dan Vişoiu Biriş Goran SCPA VentureConnectStr. Emanoil Porumbaru, nr. 77 RO-011424, Bucureşti Tel: +40 21 260 07 10 Fax: +40 21 260 07 20 12