Raising a multi-million equity round for a tech start-up without the founders losing control
Alphabet shares, bespoke articles and decisions reserved to the founders, so a seven-figure raise did not cost them control of the company
By Malcolm ZoppiTechnology and software
Key facts
- Deal type
- Investment and finance
- Acting for
- The company and its founders
- Business
- UK technology start-up
- Sector
- Technology and software
- Deal value
- £1m+
- Structure
- Equity raise using alphabet shares with different rights, bespoke articles of association and matters reserved to the founders
- Timescale
- Structured and documented as a single round
- Completed
- Completed
- Lead solicitor
- Malcolm Zoppi
At a glance
A UK technology start-up backed by sophisticated investors needed to raise a seven-figure sum in equity. The founders needed the money but did not want to hand over control of the company with it. We structured the round using alphabet shares and bespoke articles, with certain decisions reserved to the founders, so the investors got the economic rights they needed and the founders kept control.
The client and the objective
This is a common dilemma. A large raise usually means issuing a large number of shares, and with ordinary shares every new share carries a vote. The founders wanted to raise the full amount while keeping voting control and their authority over how the business is run.
The deal
- Different classes of shares, each with its own rights to votes, dividends and capital.
- Bespoke articles of association setting out those rights.
- A list of key decisions that need the founders' consent.
Key legal issues and how we solved them
Separating money from control
Alphabet shares allow a company to give investors the economic return they are paying for without giving them a matching share of the votes. The rights of each class were set out precisely in the articles, so there is no doubt later about who is entitled to what.
Reserved matters
On top of the share rights, certain decisions were reserved to the founders, a practice common in venture-backed companies. That protects the founders on the issues that matter most to them, even if their percentage shareholding falls in future rounds.
Balancing investor protection
Sophisticated investors expect protection too. The documents had to be acceptable to them as well as protective of the founders, which meant agreeing where the line sat between founder control and investor safeguards.
Outcome
The company raised the funds it needed and the founders kept voting control and their authority over the business.
What this deal shows
- Founders do not have to trade control for capital if the share structure is designed properly.
- Alphabet shares and reserved matters work best together.
- The articles must spell out each class's rights clearly to avoid disputes in later rounds.
“The founders needed the money but not at the price of their company. The share structure let them have both.”