Convert enterprise value to equity value

CONVERT ENTERPRISE VALUE TO EQUITY VALUE UPDATE

The investor may also insist on a valuation cap. In terms of the class of shares, the loan investor will usually subscribe for the most senior class issued in the funding round when the loan converts.

This would, of course, be subject to adjustment in certain circumstances вЂ“ for example where the company might issue other shares or options during the period prior to conversion. The loan will normally convert either at an agreed price or (more commonly) at a discount against the price achieved per share in the qualifying round of funding. The parties should consider the conversion price and the class of shares on conversion.

What will be the price per share on a conversion? The investee company, however, will want to ensure that the stipulated amount is both realistic and achievable. The investor will want the threshold amount to be high enough to ensure that, if the loan does convert to shares, those shares are in a company which is both promising and sufficiently funded. When negotiating the amount of funding which must be raised before a round constitutes a qualifying round, there will need to be a compromise to reflect the company and the investor's respective interests. Note that further triggers would include default, change of control and the sale or liquidation of the company. This will typically be either an agreed date or a qualifying round of equity funding. The investor and the investee company will negotiate the 'trigger' for the conversion of the loan notes into shares. These loans represent a form of financing which ordinarily takes less time than an equity funding round (which can be both costly and time-consuming).Д¬onvertible loan notes allow companies quick access to cash (often in anticipation of an equity funding round completing at a later date).Д«ut as with any commercial loan (and particularly because the loan is capable of converting to equity), there are a number of key terms to be considered and negotiated between the relevant parties.

What is a convertible loan?ДЄ convertible loan is a loan which will either be repaid or, in most cases, convert into equity at a future date. With that new scheme in mind, we've now looked at the key terms of convertible loans generally, and the advantages and disadvantages of such loans for both the investee company and the investor. The ВЈ250 million fund, which is intended to provide financial support to innovative start-ups in the UK, will be invested by way of convertible loans.

CONVERT ENTERPRISE VALUE TO EQUITY VALUE UPDATE

We recently published a Legal Update on the UK Government's Future Fund.

Convert enterprise value to equity value