Investment in startups
Leapfunder makes investing in startups simple, giving Angel investors access to promising startups and a steady deal-flow. This lowers the barriers to making informed and uncomplicated investing decisions.
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Evaluating Startups
Every investor chooses whether to make an investment in their own way. Some investors scrutinize the quality of the team. If the plan is less convincing, a good team can always rewrite it. Other investors focus on the plan and the first product
prototypes, since that is the core of the business. It is quite important that every investor realizes that early-stage startup investments are very risky. If the company is not successful in the end: it is much better if you still feel it was worth
a try.
Entrepreneurs are required to complete an
Information Memorandum, clearly documenting their business plan as well as the terms of the investment round. This includes a specification of the
Minimum Investment,
First
and
Final Closing Dates
for the investment round.
If the startup chooses to offer a
Leapfunder Straight Equity
investment then the pre-money valuation needs to be laid down. If instead the startup offers a
Leapfunder Note
investment then the
Interest
rate,
Discount, and
Cap
need to be laid down. In the following explanation we will assume that the startup is able to establish a clear valuation, and it is choosing to offer a Leapfunder Straight Equity investment. A startup can establish a clear valuation by showing that
there has recently been a E100k cash investment in shares for an unambiguous price.
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Pledging Funds
When you choose to invest in a company via Leapfunder, your investment is deposited in an independent bank account. This is to prevent the company from using the money before they have achieved their Minimum Investment. Only if the
Minimum Investment
has been achieved before the
First Closing Date
can the money be transferred to the account of the startup. If the Minimum is not reached, the money will simply be refunded, with no cost to the investors.
Investment can start from €1.000, while average investments fall between €5k-10k. Investment amounts have exceeded €200k.
Example:
An investor sees potential in MedicSoftware B.V. and invests €1,000 using the
Leapfunder Straight Equity
security. The investor receives a confirmation of payment. When the Minimum Investment is achieved the investment is finalized. The investor receives notice that the investment has been accepted and the cash amount is released to MedicSoftware.
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Successful Round
At the end of a successful round, any funds that haven’t been released yet are transferred to the entrepreneur who can now use the money for whatever they indicated in the
Information Memorandum. Each time that cash is released to the startup, the corresponding investor gets a security in the form of the
Leapfunder Straight Equity
security.
Immediately after the round the startup will work to make sure that all investors receive their shares. The shares are held by a
Special Purpose Vehicle (SPV)
that needs to be legally created. Although the paperwork is sometimes complicated the startup will work to make sure you receive a written copy of your
SPV Shares
as soon as possible. Until the SPV shares are received you are formally a bondholder: that means you already have formal rights as an investor, but not yet all the rights that a shareholder has.
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Growth Phase
During the growth phase after the funding round, the investors can contribute a lot to the startup by offering help and assistance. Look for valuable contacts in your network and try to bring in customers. An active group of investors can really make
the difference.
Example:
A Leapfunder investor that has invested €1,000 makes a habit of reading the regular updates from the CEO. When he sees that the company is trying to expand into a country where he has contacts, he offers assistance in building the business there.
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