Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
Issue link: https://digital.carswellmedia.com/i/1123981
18 LEXPERT MAGAZINE | MAY 2019 ence is expensive), and enhance the product offering with some additional customer facing features. You also have your eye on two acquisitions in adjacent markets to fill out your product offering. Venture Capital One option for you is venture capital. To- day, your balance sheet has only one class of shares – so called "common shares", which is the basic type of equity issued to founders and early seed investors. Com- mon shares have three core attributes: each common share has a vote (primarily to elect the Board of Directors of the compa- ny, the Board essentially having oversight for the overall direction of the company, and hiring and firing the senior manage- ment team); the common shares are en- titled to receive dividends when the Board decides the company will pay them (but most early stage, private tech companies don`t pay dividends); and upon any sale or winding up of the company, the holders of common shares receive the residual value paid by the buyer of the company aer creditors are satisfied. Expanding your tech company in the fintech space still takes venture capital Venture investors usually purchase not common shares, but rather a "preferred share", typically an instrument such as a so-called "Series A Share". ese are "pre- ferred" shares because they have a prefer- ence over the common shares; but they are also convertible into common shares. So, for example, upon a sale of the company, the holder of a Series A Share would receive the greater of either: (1) the money they invested (if the purchase price for the com- pany is fairly low, because the company has not done very well – this essentially gives the venture investor some down side pro- tection); or (2) the percentage of the com- pany they would hold if they converted their shares into common shares (this al- lows them to participate in the growth of the company's valuation if the company Tech Finance 101 You are the founder of a fast growing tech company in the fintech space. You have a great soware product used by banks and other financial institutions, which you make available on a hosted basis to custom- ers in North America, but increasingly in Europe and Asia as well. You are growing fast. You are currently number 4 in your market, but you have your sights firmly on moving up to number two, in terms of to- tal sales and market share. You are scaling quickly internationally. You just opened offices in New York and Charlotte, but you would like to expand with a physical pres- ence in London, Frankfurt and Singapore. Time is of the essence. So far, you have been able to finance your growth through cash flow – those three early adopter customers in Toronto were a god send; they believed in you, they got a good price for being beta customers, and they helped you scale up the product and the business around the service. But now you could use $10 - $ 15 million to open those foreign offices, hire some senior sales people (selling enterprise soware into the financial services sector is hard, and experi- COLUMNS TECHNOLOGY By George S. Takach PHOTO: SHUTTERSTOCK