Growth funding is not a new concept. For decades, investors have provided long-term equity funding to businesses. Yet, the opportunity to benefit from growth funding seems more appealing than ever for SMEs and entrepreneurs. It is a hugely flexible form of funding for both an investor and company. It can take many forms to fit the required purpose and desires of the company/investor. We have touched on a few of the principal subject headings for consideration by investors below:
Methods of growth funding: (i) debt (convertible); and/or (ii) equity. Such funding can be provided in stages either on certain trigger dates or upon performance targets being achieved to ensure an investor is not “throwing good money after bad”.
Monitoring growth funding: (i) Board Director; (ii) Board Observer; (iii) contractual information rights; (iv) rights of audit/inspection; and/or (v) investor consent matters.
Mechanisms to exit growth funding: (i) Drag Along rights; (ii) Tag Along rights; (iii) various contractual rights (e.g. to require that a company commences a sale process); (iv) put option; and/or (v) direct rights of sale to a third party (subject to pre-emption).
Terms for founders/managers: (i) capital structure; (ii) transfers; (iii) Good Leaver/Bad Leaver; (iv) vesting; (v) exit; (vi) warranties; and (vii) employment related arrangements.
Reed Smith has recently acted for the Channel 4 Growth Fund on their first five investments in TV production companies. The team advised Channel 4 on the formation of the Growth Fund and the terms of their proposed investments and then worked with Channel 4 to execute the first five investments by the Growth Fund in Arrow Media, PopKorn Media, True North, LightBox and Eleven.
David Abraham, Chief Executive of Channel 4:
“This is a very exciting first wave of great British creative talent backed by the Channel 4 Growth Fund. What we will do is help support their growth over time, and redirect all future returns back into either making more programmes, or investing in new companies. It’s as simple as that.”
Laura Franses, Head of the Channel 4 Growth Fund:
“I was delighted to work with Reed Smith and their excellent team on five exciting and fast paced media deals. This was a high profile first time initiative for Channel 4 and the outstanding leadership of James Cross delivered seamless results. We found the quality and speed of the work to be excellent and as importantly it was a pleasure to deal with such a highly personable team.”