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Dan Visoiu - Receiving an Investmet: StartUps Legal Procedure
1. RoNewMedia PRESENTATION
Dan Vişoiu
17 May 2012
Biriş Goran SCPA
77 Emanoil Porumbaru Street, RO-011424, Bucharest
T +40 21 260 07 10, F +40 21 260 07 20
www.birisgoran.ro
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
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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.
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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.
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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.
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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 kickstarter.com)
• 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)
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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
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8. VentureConnect Explained
(www.ventureconnect.ro)
• 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
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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
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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
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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
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