Angel investments

We protect angel investments. You maximise your returns.

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Angel investments

We can protect your angel investment so you maximise returns. Whether the investment is small or large, a one-off or a series of investments, we bring experience and expertise. We have seen failures and success, and understand the importance of considering your exit at the very beginning.

Intellectual Property issues in angel investment

Often, the parties first table the term-sheet, sometimes called the heads of terms. This document defines the terms and conditions of the angel’s proposed investment. Usually, we’d suggest:

  • Confidentiality: particularly for high-growth, high-tech companies with valuable intellectual property rights;
  • Tax efficient SEIS/EIS: methods of investment; and
  • Investment structure: either debt or equity finance.

If you proceed with equity finance, then we would ensure that the company’s constitutional documents specify the rights attached to investment shares, e.g. rights to dividends, distributions and voting. Each deal is different. However, it is likely that we will have worked on a similar deal in the past.

Due diligence

Part of the legal due diligence is to ensure the company owns the intellectual property it claims to have invented or own. Issues often arise during the intellectual property due diligence, but this prevents “surprises” at a later date. For instance, sometimes the company thinks it has acquired its IP rights from a previous venture, but doesn’t have complete ownership. In particular, we check:

Unregistered rights

For example, unregistered logos, brand or trading names. If important rights are unregistered, we investigate the start-up’s “intellectual property portfolio management system”, and if desired, register what can be registered.

Registered rights

Such as patents, registered trade marks and registered design rights. If the start-up registered these rights, then it indicates the company is serious, means business, and aims to exploit the market. If instructed, we conduct a search of the registered rights, and ensure the company has:

  • Proprietorship,
  • Access to geographical spread, a term for the use of the intellectual property rights protected,
  • No detrimental encumbrances.

How to structure your investment for your advantage

Methods of investment vary, and each method has tax considerations, which is our expertise. Usually investment involves a fusion of:

  • Ordinary shares: the company’s common stock for raising capital;
  • Preference shares; and
  • Convertible loan notes.

Preference shares

Preference shares usually entitle the investor to:

  • A right to first distributions: i.e more chance of their money back if the company does not achieve targets and is sold;
  • Perhaps 6% to 8% interest on their investment; and
  • A conversion option to ordinary shares, so gaining the equity upside.

Convertible loan notes

Convertible loan notes are increasingly common. This instrument enables the angel to participate in the upside, and potentially gain control if the business does not succeed. Typically the convertible loan note carries an interest rate around 6%. The interest isn’t actually paid, but grows the principal each month. Then:

  • At the next financing round: the note converts into equity, typically at a discount of perhaps 25% to the valuation achieved at that round.
  • After a defined period: perhaps 18 months, the loan converts into equity at preset terms, or must be repaid in cash. This means either the angel gains control, or forces the sale of the business to repay the loan.

How to structure the board & management

Angel investors, with considerable business management experience, may want a higher degree of management control. On the other hand, serial angel investors may find that director’s duties conflicts with their other ventures. The following documents are advisable, should you want a degree of control over the company’s affairs:

Employment contract/service agreement

Since the main product of a high-growth, high-tech start-up is usually intellectual property, the employment contact or service agreement governs ownership of any IP created during the employment. It is common to place restrictions on:

  • Know-how;
  • Confidentiality; and
  • Ownership of rights;


Usually investors place reporting obligations on the company, so as to watch the company’s finances. In practice this means specifying the production of the management accounts. This provision is usually included in a bespoke shareholders’ agreement.

How to formulate an exit strategy that maximises your returns

A shareholders agreement greatly facilitates a smooth exit from your investment. We are often instructed to formulate an exit strategy, usually after a dispute or due to financial concerns. Without a shareholders agreement, an exit is still possible, but much simpler if a shareholders agreement is in place. Note we have particular expertise in private company valuations. This expertise enables us to create the most appropriate exit plan.

A shareholders’ agreement usually contains “trigger events” which give effect to an exit. Typical events are:

  • An initial public offering.
  • The company’s shares trade on a recognised public market, e.g. London’s alternative investment market.
  • A private company sale.
  • A private company sale proceeds more smoothly with drag along rights. These give the majority investor the power to require minority shareholder to sell their shares to the third party.
  • A compulsory event.
  • A compulsory event such as the angel leaves the company as an employee and/or director.
  • Future financing rounds.

How the angel’s initial investment is treated during future financing rounds is key to a successful investment. Future financing rounds might dilute the angel’s investment. The solution is to ensure any future share issues are first offered pro-rata to current shareholders. Thus the angel has a pre-emption to provide additional investment, if desired.

Angel investment from incorporation to exit: case study

The angel investors first instructed us ten years ago. Recently, we were delighted to complete the sale of their company for a substantial return. We had supported the company’s business affairs from incorporation to exit, which utilised our IP, employment, corporate and commercial expertise. We enabled the angel investors and the company to:

  • Implement an effective growth strategy;
  • Prepare the business for sale following its rapid growth;
  • Negotiate a sale with a large corporation; and
  • Negotiate and obtain shareholder agreement for the exit.

Angel investors incorporate the Indian restaurant

In 2007, an Indian chef began trading from a pop-up food stall, outside a London underground tube station. The dishes were popular, and the chef sought investment for a restaurant in the outskirts of the City. Two angel investors looking to invest in the chef came to us in 2008. We prepared:

  • Incorporation documents: to register the shareholdings in a private limited company;
  • A shareholders agreement: which set out each party’s responsibilities to each other, and the reports the investors would receive;
  • The company’s articles: tailored to the company’s requirements;
  • Company directors: left to the chef. We advised the angel investors not to become directors of the company.

Growing the business after angel investment

We were retained by the restaurant, becoming the business’s legal advisors. We protected the business’s intellectual property. The chef appeared on TV and authored cookery books, so much of the business’ value was in the brand and the chef’s recipes. We registered the chef’s intellectual property, in his own name, and then granted the restaurant a licence to use the chef’s intellectual property. This proved crucial on sale.

By 2010, the business comprised three Indian restaurants in London. Senior employees were awarded enterprise management incentives, which we drafted the agreements. The incentives were linked to performance metrics such as group bookings and turnover.

With a recognisable brand, the restaurant chain attracted interested investors.

Preparing the exit

Together, the chef and the angels retained 80% of the voting rights. Nevertheless, there were 32 additional shareholders, some on enterprise management incentives.

The chef and the angels wanted to sell the business. We amended the company’s articles to include a drag along right. So if the company received an offer, agreed by 75% of shareholders’s votes, then this majority could force the remaining shareholders to accept the offer.


The chef and the angels begun negotiations with a buyer, who offered just over £10m. The due diligence was short, as we held everything, from incorporation documents to enterprise management incentive agreements. The buyer offered the chef and the angels a 15% share in the company following sale. Therefore we prepared:

  1. Bespoke employment service agreements to reflect the terms of the appointments;
  2. A tax covenant, limited to protect the chef and the angels in the future;
  3. A share purchase agreement for all 35 shareholders;
  4. Exercise notices, so that the enterprise management shares were included in the sale; and
  5. All corporate and commercial procedure documents.

Intellectual property

The chef wished to retain the registered intellectual property. So we ensured that our licence remained in force following completion. However, we varied the territory and use of the licence, so that if the restaurant under the new owners failed, the chef retained the right to use his IP elsewhere, e.g. in another restaurant.

Acting from incorporation to exit, we supported the angels and the chef across the spectrum of business’s needs. Our advice was a catalyst for growth and the ultimate sale. The sale realised a healthy return for the angels and the company’s shareholders. One reason the business was attractive was that every document was in place. We had explanations for all the issues raised by the buyer’s legal due diligence. Thus the sale proceeded to a smooth completion.

Our track record advising angel investors

Most angel investor clients invest in high-growth, high-tech start-ups. Examples include:

  • £250k equity investment by angel investor in a Shoreditch-based social media and party audience company.
  • Angel investor consortium making £1m start-up loan to an e-commerce cashback platform.
  • Intellectual property licence agreements, ancillary to a £3m investment in a price comparison mobile app for alternative travel formats.
  • £500k investment in an extra-curricular CV platform for students by serial angel investor.

Most angel investors are experienced managers, and know their market. We ensure the legal documentation is in shape before the investment. We work to tight timescales, as often business’ desperately need the investment. We understand real life, and deliver on time and always within budget.