Capdesk now supports investments via investment vehicles, such as certain forms of fund, trust or nominee setups.
Investing the usual way
Usually, an investor performs an investment in a company simply by acquiring company shares directly. In this situation, the investor will appear on the company’s cap table and the investor’s holding is directly apparent.
Investing via a corporate vehicle
Investors may sometimes band together and group themselves into a newly formed company, usually referred to as an SPV (special purpose vehicle) with the single purpose of performing an investment in a specific portfolio company. Such corporate SPVs simply becomes company shareholders once the investment is carried out, and the SPV itself is governed by documents and rules entirely or almost entirely similar to those governing a standard company (the SPV investors can be persons and companies). Capdesk has always supported corporate SPVs (as they are simply corporate stakeholders in the portfolio company).
Investing via a non-corporate vehicle
Investors may also invest via a non-corporate vehicle (also sometimes referred to as an SPV).
This can be the case when an investor invests indirectly via a nominee shareholder (also sometimes called the custodian). The nominee shareholder will then hold the shares on behalf the investor, and the investor is in this situation often referred to as the actual owner or beneficial owner. The arrangement between actual owner and the nominee is governed by some custodial contract document, in some cases, it can be a declaration of trust. The effect on the portfolio company’s cap table is that the beneficial owner is not directly visible, rather, the nominee shareholder is seen.
In some cases, many actual owners can appoint the same nominee shareholder and let the nominee handle all of the dealings on their combined behalf. Such a setup can for example be useful for handling a multitude of crowd-equity investors that all invest on similar conditions; with the nominee in place, the portfolio company’s cap table and investor-related administration tasks are simplified greatly. Crowdcube is an example of a crowd-investing platform using this approach.
Non-corporate investment vehicles on Capdesk
Capdesk now supports non-corporate vehicles, such as company nominees, where one or more investors (persons or companies) invest via a corporate nominee in a portfolio company.
For instance, let’s assume that JungleFizz, a (hypothetical) maker of soft drinks based on tropical ingredients, raises £10,000 from 100 crowd-investors, among them Karen Smith, investing £100 each, together securing a stake of 100,000 shares, or 1 %, in JungleFizz. JungleFizz’s sole owner, Joe Bernstein, owns the remaining 99%. The £100,000 is raised on the hypothetical crowd-equity platform U-Invest, and as part of the crowd investment agreement, all crowd investors appoint the nominee company shareholder U-Invest Nominee Limited to represent them towards JungleFizz.
Setting up this on Capdesk is easy, and would normally be performed by the administrator of JungleFizz:
1) Create a Company called JungleFizz. Add Joe Bernstein as a person shareholder (99% ownership) and U-Invest Nominee Limited as a vehicle investor (1% ownership).
2) Create a Vehicle called, for instance, U-Invest Nominee Limited (JungleFizz), and specify the portfolio company to be JungleFizz, and the parent company to be U-Invest Nominee Limited (the vehicle represents the crowd investment agreement of U-Invest Nominee Limited's investment in JungleFizz). Add the 100 crowd investors to the vehicle (e.g. using our data importer).
3) Voila – that’s it! Crowd investors will now have access to both the investment vehicle (where they can inspect the nominee agreement and perhaps some investment deal details, and probably not much else) AND, more interestingly, JungleFizz (where they can track the performance of their investment, see and comment on portfolio company news, and more).
Dilution-wise, we note that for Karen Smith, who participates with a “1 % stake” in the crowd-investment agreement, does NOT own 1 % of JungleFizz, but only 0.01 %; in case JungleFizz later issues further shares, Karen and her crowd companions will be further diluted. Moreover, we also remark that it is possible for the administrators of vehicles and companies to customize and restrict access between portfolio companies and investing entities as they see fit – investors only gain access to data allowed by both investing entity and portfolio company.
We plan to implement fully-fledged support for funds, where one parent company (the fund) can control a range of non-corporate investment vehicles with differing investor sets and differing fund managers can have differing administrative capabilities, and – depending on customer needs – extend our support for investment vehicles, so that one vehicle can have multiple portfolio companies. We also plan to improve support for reporting needs related to beneficial owners. For instance, a company in the UK have PSC (person of significant control) authority reporting obligations, which Capdesk can automate once the beneficial owners have been registered.
If you have any questions or comments, feel free to write to me at email@example.com, or begin setting up your advanced investment structure today by emailing firstname.lastname@example.org to get a Capdesk account.