Anvil Partners recently devised a novel way for companies to raise larger amounts of Pre-IPO finance by coupling the issue to an AIM Admission.
Private investors who qualified as high net worth individuals within the 2005 Financial Promotions Order of the Financial Services and Market Act of 2000 invested in a Pre-IPO round of financing. The funds raised were placed in an escrow account and were released to the company on the AIM Admission. If the company had not completed an AIM Admission by a specified date, the funds, plus interest, would have been returned to the investors.
The investors were very attracted to this structure because:
- Many Pre-IPO rounds do not result in an IPO. This structure guaranteed an IPO, or money back;
- Private individuals could get into a Pre-IPO round. These rounds are normally reserved for institutional investors;
- Private individuals could effectively participate in an IPO. Again IPOs are normally reserved for institutional investors except in the case of a privatisation or other very large issues; and
- The issue qualifed for EIS.
The attractions to the company were:
- It could raise more money as investors were prepared to increase their commitments due to the attractions of the structure;
- It could get the professional advisers to work on a contingent basis as the completion of the funding stage in advance of the work on the AIM Admission gave the advisers the confidence that their costs would be met;
- The EIS relief effectively locks the investors in for at least three years (or they lose the relief);
- The funding risk was removed from the Admission process;
- The terms of funding from venture capital firms might not have been acceptable to Business Angels who invested in the earlier rounds;
- The costs of the Admission were reduced since the company's shares were not offered to the public at the time of Admission and therefore a full prospectus was not required; and
- The normal route to AIM Admission via an institutional placing was not feasible as the company was at too early a stage in its development.
The structure necessitated navigating some paths that are not well trodden, relating to the dissemination of information and visiting the safe harbours within FISMA and the Prospectus Directive.
The structure also benefitted from recent changes in the regulatory environment and could be of considerable appeal to future issues.
