What is a premoney valuation?

The pre-money valuation is the agreed valuation of the company prior to receipt of the investment amount.

How are the founders get to fund their project?

By drafting a Term Sheet where the main point will be how the Capital Structure will be organized and displayed.

Capital structure:The capitalisation of the Company immediately prior to investment and after investment of the Investment Amount will be as set out in the capitalisation table attached as the appendix to this Term Sheet.

Condition:The issue of Shares to the Investor is conditional on the Company being satisfied that an exception to the information disclosure requirements of the Financial Marker regulation that applies in relation to the issue of the Shares.

Some useful concepts:

 Pre-emptive rights and drag and tag along:

In addition to usual pre-emptive rights:

▲     drag-along rights will apply where shareholder(s) wish to sell xx% or more of the Shares in the Company to a third party (so that the Shareholders selling their Shares may require the other Shareholders to sell all of their Shares on the same terms); and

▲     tag-along rights will apply where shareholder(s) wish to sell more than 50% of the Shares in the Company to a third party (so that the shareholder(s) wishing to sell must procure the buyer to make a binding offer to buy the Shares of the other Shareholders who wish to sell on the same terms).

Concepts we need to understand.

▲     Drag-along rights entitle a specified majority of shareholders to force the remaining (minority) shareholders to sell their shares if a major shareholding in the Company is to be sold.  The existing shareholders will benefit from having drag-along rights (as minority shareholders will not be able to prevent a sale of the Company).

▲     Tag-along rights entitle minority shareholders to sell their shares if a major shareholding in the Company is to be sold.  It is reasonable for an investor to have the benefit of the tag-along right so it can participate in a sale by the majority.

▲     Pre-emptive rights (meaning the obligation on shareholders to offer their shares to existing shareholders before selling them to a third party) and tag and drag along rights should be included in the Company’s constitution.  See the template constitution in the governance section of the templates page of our website.