Get­ting the most out of eq­uity fund­ing po­ten­tial

PLAT­FORM In ad­vance of dig it ald na and with the gen­eral eq­uity fund­ing land­scape look­ing­pos­i­tive, John­m­cguck­ian, a part­ner in tug hans cor­po­rate team with a spe­cial­ism in ven­ture cap­i­tal and pri­vate eq­uity le­gal work, shares some prac­ti­cal ad­vice

Belfast Telegraph - Business Telegraph - - News - John Mcguck­ian is a cor­po­rate part­ner at law firm Tughans

Firstly, com­pa­nies who go into a fund­ing process with a well-honed, re­al­is­tic busi­ness plan and fi­nan­cial pack find it quicker and eas­ier to at­tract in­vest­ment and close the round. The com­pany’s re­quire­ments for, and chal­lenges to, growth will there­fore be clear. It al­lows the com­pany to tar­get the right in­vestor who can pro­vide not only the ini­tial fund­ing re­quire­ment, but also de­sired con­nec­tions or ex­pe­ri­enced non-ex­ec­u­tive di­rec­tors and ad­di­tional money for fol­low on fund­ing etc. It also al­lows the in­vestor to quickly an­a­lyse the com­pany and see the po­ten­tial for re­al­is­ing its in­vest­ment.

The sec­ond rec­om­men­da­tion would be to en­sure that, as far as pos­si­ble, the com­pany’s af­fairs are all in or­der be­fore the fund­ing process com­mences. It is rel­a­tively com­mon for fun­ders to dis­cover is­sues in due dili­gence that need to be dealt with prior to com­ple­tion of an in­vest­ment. These are of­ten ‘pa­per­work items’ that can be eas­ily reme­died, but can have sig­nif­i­cant le­gal con­se­quences if un­re­solved and there­fore add de­lay and cost to the deal. Be­yond that, the im­por­tance of choos­ing the right in­vestor (that the man­age­ment team is con­fi­dent about work­ing with) and hav­ing ex­pe­ri­enced pro­fes­sional ad­vis­ers (who can pro­vide ad­vice on ‘in­dus­try norms’ and help to find work­able com­pro­mises in deal ne­go­ti­a­tions) is es­sen­tial.

This per­cep­tion is of­ten a ma­jor in­hibitor to fam­ily/owner man- aged busi­nesses look­ing for eq­uity in­vest­ment, but our ex­pe­ri­ence is that in the nor­mal course of trad­ing it is def­i­nitely not the case. The most suc­cess­ful eq­uity in­vest­ments are those where the in­vestor has a great work­ing re­la­tion­ship with the com­pany’s man­age­ment team from the out­set, and an align­ment of in­ter­ests that helps to fuel the com­pany’s growth.

Most in­vestors would agree that re­gard­less of what the le­gal doc­u­ments say, real con­trol lies with the peo­ple who run the busi­ness day to day. For that rea­son most in­vest­ments are heav­ily based on the in­vestor’s faith in the man­age­ment team. In the event that the re­la­tion­ship does sour the pro­tec­tions granted to both par­ties in the in­vest­ment doc­u­ments should pro­vide a road map for resolution, and so re­quire care­ful con­sid­er­a­tion at the out­set.

While high tech com­pa­nies are ex­tremely good can­di­dates for eq­uity in­vest­ment and the com­pa­nies show­cas­ing at the up­com­ing Dig­i­tal DNA will il­lus­trate that, lo­cal and other fun­ders are also ac­tively look­ing to di­ver­sify their port­fo­lios and are very happy to con­sider com­pa­nies across all sec­tors where there is high growth op­por­tu­nity and good exit po­ten­tial.

Many of the eq­uity funds who are ac­tive in North­ern Ire­land would de­scribe their funds as gen­er­al­ist (as op­posed to sector spe­cific) but net­work­ing can be key here, as of­ten pro­fes­sional ad­vis­ers and other in­ter­me­di­aries are aware of what sec­tors are of par­tic­u­lar in­ter­est to par­tic­u­lar funds or in­vestor syn­di­cates from time to time. In­creas­ingly funds from the Repub­lic of Ire­land, the wider UK and fur­ther afield are look­ing at opportunities here.

Tughans has worked on the ma­jor­ity of eq­uity in­vest­ments, from both the in­vestee and in­vestors’ side, in North­ern Ire­land over the last num­ber of years, work­ing on trans­ac­tions with funds in­clud­ing Tech­start, the Co-in­vest­ment Fund, Ker­nel Cap­i­tal, Cres­cent Cap­i­tal, Broad­lake, Ac­cel­er­ated Dig­i­tal Ven­tures, MML Growth Cap­i­tal as well as nu­mer­ous in­vestee com­pa­nies at all ends of their fund­ing cy­cle right through to exit and, in the case of Fu­sion An­ti­bod­ies plc, to list­ing on the Al­ter­na­tive In­vest­ment Mar­ket.

John Mcguck­ian (right) at the launch of Digi­tial DNA

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