Substantive Research - Securing investment (SEIS/EIS)

About Substantive Research from Mike Carrodus - CEO

I founded Substantive Research in 2015, having over 25 years’ experience working in financial data and research. Since launch, Substantive Research has worked with over 60 of the world’s leading asset managers to optimise their research budgets. The Company provides value benchmarking data, coverage analysis, analyst moves and new provider tracking, tailored to each client’s investment process and coverage requirements. In addition, clients can sample research from new providers in a MiFID II-compliant service that ensures their fund managers are kept aware of differentiated, cost-effective alternatives in areas of greatest interest.

Substantive Research is behind the highly popular, annual Unbundling Uncovered events in London and New York, which bring together the research procurement industry to discuss current market trends.

What challenges do you face?

Foresight’s investment will help the Company accelerate its growth by investing in the team, particularly supporting the recently opened Scottish office, as well as expansion into the USA and Asia.

Now more than ever, high quality research needs to be found and rewarded appropriately, whilst asset managers focus on getting maximum value from their research budgets. This investment and partnership with Foresight allows us to build out the team in the UK, US and Asia, whilst deepening and broadening the coverage and valuation databases that drive the insights our clients find so valuable.

The Brief

Substantive instructed Gannons to advise on the £800,000 growth capital investment by Foresight Group LLP, a leading independent infrastructure and private equity investment manager, into Substantive.

What challenges (if any) did you face?

As with any major investment the due diligence is a huge process. The company’s documents are uploaded to a data room and the potential investor gets comfortable with the business to consider will their investment be based on solid ground. During that process the legal negotiation and documentation drafting starts which can be as delicate a process as the due diligence.

Substantive has a complicated share structure. It already had four classes of shares. The Investor intended to take certain preference share rights and being that we are an EIS company, in-depth knowledge and careful drafting was required to ensure the Investor could achieve their preferences without falling foul of the EIS qualification rules.

Certain restrictions were not included for this reason and the rights on exit were split between sale and return of capital to ensure that were no liquidation preferences for EIS shareholders.

The pre-emption rights and compulsory transfers were heavily negotiated and carefully drafted to prepare for as many eventualities as possible protecting both the Company and the incoming Investor. This included negotiating the re-designation of shares held by employees to a separate class upon leaving the Company, so that the Company had a bigger pool with which to offer incentivised packages to new employees.

Emergency funding provisions were put in place to permit relaxing of the pre-emption rights on issue of shares in certain circumstances.  The relaxation of the usual rules was intended to allow the directors to fund raise quickly if they felt this was what the business needed.

Other protections were requested by the investor including, additional share right protections and entrenched investor directorship rights, which included some negotiation back and forth until all parties were  comfortable that the protections were protective rather than restrictive on the business.

Prior to instructing Gannons we had agreed a heads of terms that were extensive. However, there remain  commercial/legal issues that heads can never cover. Whilst Gannons briefed me on what to expect, the process was still detailed. Luckily everyone was working towards a common goal and we managed to avoid commercial ’round table’ meetings and ‘red line’ talks.

What would you say about working with Gannons?

Gannons were responsive, efficient and supportive. They are specialists when it comes to negotiation, took the time to really understand our needs and knew when to be tactical, when to push and when to let go.  They also have in-depth knowledge of the EIS requirements and various other tax implications providing a full corporate service.