You decided to invest in a project and put some of your hard-earned money in it because you believe it could be the next unicorn giving you a nice return on investment. Great! You will probably also want the CEO in charge of the project to use his or her time wisely and to focus on creating growth and profits. Did you know that you can help that CEO do just that, even if you are not actively involved in the project?
As an investor, you can play a key role in freeing up admin-time from the CEO. Indeed, CEO’s are found to spend between 50% and 75% of their time on admin and meetings. Whether is it to do multiple funding rounds, capital calls, distributions or let investors take decisions, a significant portion of time goes to administrative management of investors.
So how can you help? The idea of pooling stakeholders can come to mind. It’s a technique allowing all stakeholders to retain their economical rights but that streamlines stakeholder management. Could it be a win-win? It depends. There are some important differences between the various pooling solutions on the market. Being aware of them and identifying what is important to you and the company will be key in making sure you choose the right solution. After all, deciding on a solution without understanding the differences could end up taking even more time from the CEO and from you and be more costly than if you had not done anything in the first place. What was supposed to free up time and resources could then end up doing the opposite and become a headache that never quite goes away.
What if you wanted to benefit from tax shelter incentives as you would be able to if you were alone but now that you are pooled you no longer can?
What if one of the other investors has debt? Can you be sure the creditors will not come looking for you now that you’ve combined your investments?
What if you don’t know the other investors? Who can you trust to act as manager of the vehicle and to represent you externally?
What if the initial set up of the solution is a price you agreed to but there end up being (annual) costs you were not aware of (for example for bookkeeping, mandatory publications or a manager) and now must contribute to?
You might not think you would be confronted with these issues when all you wanted is allow for a more efficient stakeholder-management but if you fail to ask the right questions, you unfortunately risk ending up with a ‘solution’ that is not a solution for you at all.
At Spreds, we have been helping clients with their pooling needs for over a decade which is exactly why we have put together the comparison below. It will allow you to make a well-informed decision based on your specific needs. We have focused on the partnership (société simple/maatschap), the private foundation (fondation/private stichting), the STAK (Stichting Administratiekantoor according to Dutch law) and Spreds Finance (naamloze vennootschap/société anonyme) and we look into the following features:
Creation and initial set-up
Applicable law
Use
Representation and discreteness
Management
Decision-making process
Limited liability, bankruptcy remoteness and tax shelter advantage
Bookkeeping and audit
As you can see through this table (see pdf) , there are several solutions out there of which some may answer to certain of your requirements but have downsides you may not have been aware of that are dealbreakers, such as hidden costs down the line for bookkeeping, taxes, publications, notaries and/or attorneys.
Now that you know the differences, you can decide based on what is important to you. As an employee, being able to hold subscription rights (warrants) through the pooling vehicle might be a determining feature for you. Or if you want to invest in a green project, you will perhaps invest through a loan instead of through shares in the project, meaning a foundation would not work for you. Alternatively, if you do not know the other investors, having a professional and neutral third-party manager responsible for the representation of the pooling vehicle, the bookkeeping and the stream of information might be what is most important for you. Our clients have come to us with various concerns, and we provide them with honest answers even if that means that our solution is not ideal for them.
If you are unsure about whether pooling works for you and what solution works best for your particular situation, reach out to us and we’ll be happy to discuss this further with you.
Eline Murat, Risk & Compliance Manager at Spreds
In this upcoming series of articles, we will delve deeper into different topics, discussing the main points of attention as well as the dos and don’ts. Our goal is to make sure you are more prepared so that you can simplify your life in the future, thus freeing up more of your time for your core task: allowing your business to grow.
The topics that will be addressed are the following:
A comparison of different pooling vehicles.
The benefits of using a pooling entity (with legal personality).
The best ways to put an efficient governance in place.
How to organise the reporting with different groups of investors.
What the pooling of investors means in terms of investors’ rights.
What the pooling of investors means for the transferability of the shares/loans.
The consequences of an IPO/exit for the pooled investors.
How to make sure the investors benefit from fiscal transparency.
Best practices in terms of management of pooled investors.
We will close this series of articles with a global overview of the main takeaways.
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Who is Spreds?
Since 2011, Spreds served over 400 companies and international associations and managed over 55,000 stakeholders.
With eFundraising and ePooling, companies can reduce the cost of raising money and managing their investors by 3, thanks to a digital process and a digitalised pooling vehicle, and they can increase their visibility thanks to a community of 45,000 members.
With eGovernance, international associations and companies with more than 100 members or shareholders can organize their general meetings easily and in a legally valid way, while taking 5 times less time than before.