SERIES SHIELD FINANCING FORMS Ver 1.2
Raymond Asiimwe (Originator, Partner Bytelex Advocates)
Irene Eyogyiire ( Partner, Bytelex Advocates)
Gregg Griner (Contributor- Partner, Orrick)
Andrew Rhembis (Partner, Orrick)
Damilola Thompson (Vp, Associate General Counsel, Echo VC)
David van Dijk (Contributor, African Business Angel Network-ABAN)
Kitara Samuel (Contributor, Founder Yale Africa Startup Review)
Birungi Emmanuel (Contributor, KPMG)
SHIELD - Primer
Shield- Agreement for future Equity;The financing instrument intends to create a stop-gap measure for early stage investments in Africa. Traditional early stage technology companies will often use a convertible note, future equity-promissory note such as a safe or kiss. As an incentive for investment these early stage financing instruments incentivize the early investor by offering equity at a conversion discount, or valuation cap. Legal regimes in most parts of Africa make it difficult to implement discounts and valuation caps and there is generally a lack of precedent or standardisation of forms that is designed for the African ecosystem. The shield-agreement for future equity offers a fresh look at how discounts and valuation caps might work in Africa.The shield-agreement for future equity builds on acceptable practice of equity warrants, and call options. In particular creating a future event i.e. eligible financing at which stage the investor receives shares for their investment at the rightful company valuation plus additional shares as compensation for betting on a company early with the associated risk. The additional shares are offered as a “penny warrant”- at a fixed strike price (usually at a nominal/par value). Often investors are curious about the exit options available in Africa; the shield - convertible revenue loan and shield - share repurchase agreementt offer a built in return multiple for the investment made by the investor. If the investor is not fully rewarded with the return multiple, they can exit through eligible or priced rounds of financing - in essence the investor’s funds are parasitic on the future priced round such that the investor gets the upside of a good price per share at which point they can exit the investment by selling/transferring shares.Lastly, flip entities have become common in Africa. It therefore makes sense that the investor should get the benefit of a flip transaction. The instrument puts in place protections in case a flip transaction occurs.
What does the SHIELD mean?
Simple Hybrid Investment Equity Linked Derivative :)
We wanted to create hybrid quasi-equity & equity instrument adapted for the African market the name just seemed right!
How many documents are in the series shield financing forms?
There are 3 forms namely:
Shield - Agreement for future Equity
Shield - Share Repurchase Agreement
Shield - Convertible Revenue loan
Which shield is right for me?
It depends on the stage you are at;
If you are able to make regular cash re-payments to investors, can predict your growth with some level of accuracy and are willing to negotiate customised terms with the investor, the shield - share repurchase and convertible revenue loan might be a good choice.
If you need patient capital to de-risk your company, or you wish an investor to set a pre-money valuation for your company in the foreseeable future, then the shield -agreement for future equity is right for you.
Should I use the shield ?
We hope you are encouraged to use it! Our vision is to create a democratised, simple and quick way for you to raise money. After years of observing botched deals arising out of founder’s failure to articulate a return to investors and misaligned interests between investors and founders the team felt that developing standard acceptable forms practical for Africa might assist in getting investments done.
When should I use the series shield documents?
You should ideally be an early stage company pre-revenue, or a late stage company post-revenue, or in need of bridge financing.