Every company that raises funds with Crowdcube will have an exit strategy for providing investors with a return. If you wish to find out more, you will need to contact the company.
Strategies do vary from pitch to pitch so we always recommend doing your own due diligence before investing, and being aware that investing in start-ups may carry risks to your investment.
The exit options for investors in private businesses are quite different from the process of buying and selling public shares. Investments made in private companies should be seen as longer term investments as shares are illiquid.
Liquidity events can arise in order to make a return on your investment, and they are as follows:
Company sales
This is the most common form of exit for Crowdcube investors, which is usually in the form of a sale of the company’s entire issued share capital. Most sales occur more than 5 years after the point of investment. Another form of sale is asset disposal.
Please note that an exit with a positive return for investors is not guaranteed and investing in early-stage and growth-stage companies is risky. Please read our Risk Warning for additional information about the risks associated with investing in such businesses.
Can I choose to sell or keep my shares?
Whether minority shareholders are presented with the decision to sell their shares will depend on the terms of the buyer’s offer and the majority shareholders who wish to sell their shares pursuant to that offer.
Companies which raise via Crowdcube will have what are referred to as “drag and tag along” rights in their articles of association and/or shareholders’ agreement (as is prescribed by the British Private Equity and Venture Capital Association (BVCA)).
A “drag along” right allows a certain percentage of majority shareholders (usually holding together between 50-90% of the issued shares) the right to compel minority shareholders to sell their shares with them. The key here is that the offer made to the minority shareholders must be on the same terms as that made to the majority. If the majority shareholder exercises the drag along clause, it must strictly adhere to the procedure set out in its constitutional documents (which often includes a set notice period and prescribed information to be circulated to minority shareholders).
If a drag along right has been exercised successfully by majority shareholders, then the minority shareholders will be compelled to sell their shares (i.e. there is no decision to be made).
Conversely, tag along rights are a minority shareholder protection. If a majority shareholder(s) wishes to sell its shares which would amount to a controlling interest of the company being sold (or whichever threshold has been agreed in the constitutional documents), the minority shareholders shall have the right to “tag along” in the sale on the same terms (including price).
If the majority shareholders have not exercised a drag clause, Crowdcube Nominees Limited (as a minority shareholder) will be asked to sign the legal documents relating to the sale, usually in the form of a Share Purchase Agreement (SPA). In this scenario, Crowdcube’s Legal Team will review the terms of the sale and present a vote to underlying beneficial owners (Crowdcube investors). Crowdcube Nominees Limited will act in accordance with the majority of respondents (weighted by shares). For further information, please refer to the Nominee Terms at Schedule 1 of the Investor Terms.
For every raise via the platform, Crowdcube’s Legal Team will review and summarise the drag and tag along provisions and include these in the Summary of Key Information document (formerly the Legal Review), which is now available on the company’s pitch page and in the cooling-off email.
Will I receive cash in return for my shares and when will this be paid?
The consideration for the sale does not always take the form of cash - it may be cash, shares in the acquiring company, or both. If the consideration is shares, any return of capital will rely on a future liquidity event of that company - e.g. the shares being sold or undergoing an IPO.
If the consideration is in the form of cash, please note that some or all of the cash may not be payable straight away or guaranteed - it could be deferred until a later date (e.g. once accounts for the target have been adjusted and finalised) and/or it could be contingent on the management team meeting certain financial milestones following the acquisition (otherwise known as an earn out).
Crowdcube will keep investors informed regarding the transaction timetable and when payment can be expected.
Please note that an exit with a positive return for investors is not guaranteed and investing in early-stage and growth-stage companies is risky. Please read our Risk Warning for additional information about the risks associated with investing in such businesses.
What if I own a convertible that is yet to convert?
Under most convertible agreements, a sale or any kind of exit would be considered an automatic conversion event. Therefore, your investment will most likely be converted to shares just prior to the sale. If you are a convertible loan holder, we recommend that you review the terms of the convertible loan and the Legal Review / Summary of Key Information document to check the terms that apply to your investment.
What does Crowdcube do for me?
Crowdcube has three main roles in these circumstances:
- Representation - we will represent you at the table and ensure that we are getting the best return possible for you.
- Translation - we will provide you with concise and clear decisions to make, not endless legal documentation that is hard to understand.
- Intermediation - we will distribute funds to you and/or hold any share consideration, as well as liaising with all relevant parties throughout the process.
Secondary Sale
A secondary sale occurs when an investor buys shares that have already been issued. It is similar to a company share sale (i.e. where the buyer buys the entire issued share capital of a target company), but involves buying a partial shareholding in the company which does not result in a change of control.
Typically, secondary sales (sometimes referred to as “secondaries”) occur in later stage companies that have investors interested in acquiring a stake in the business. Depending on the level of buyer interest, this may give Crowdcube investors the opportunity to either sell their shares or express an interest to buy shares in the business. Secondaries are often run simultaneously with a primary funding round and the secondary shares may be offered at a discounted price.
Will I have any choice in the matter?
In most circumstances, Crowdcube will set up a vote so that each beneficial owner of shares can make a decision to review the sale opportunity (e.g. identity of buyer (which may or may not be disclosed depending on transaction and the sale price). The sale may be on an “all or nothing” basis (i.e. you sell all of your holding or nothing at all) or investors may be able to express an interest to sell up to a certain amount of shares, which may be scaled back depending on buy / sell interest. The terms of the vote will make any such terms of the transaction clear.
There are instances where the secondary offer is contingent upon Crowdcube Nominees Limited selling its entire stake. In this case, Crowdcube would set up a vote and act in accordance with the simple majority of respondents, weighted by shares.
Crowdcube shall keep sellers updated regarding the timetable of the transaction which can widely vary.
Share buyback
A share buyback is similar to a secondary transaction from a seller perspective, but the buyer of the shares is the Company. For instance, if the company has spare cash and there is sufficient seller interest, the company may offer to buy back some / all of their shares. As with a secondary transaction, Crowdcube will set up a vote so that you can make a decision to sell your shares or not. Crowdcube will keep sellers updated regarding the timetable of the transaction which can widely vary.
Dividends
A dividend is usually a portion of the company’s net profits that are paid to shareholders. Many investors associate equity investment with the payment of dividends. However, dividends are more typically paid by established companies with stable profits and less aggressive growth strategies. Early stage companies often reinvest any profits in growth and dividends are therefore not typically a priority, especially in the early years.
Some of Crowdcube’s funded companies distribute dividends and, if you have invested in one of these companies and are owed a dividend, our Support Team will be in touch with details of the dividend payment and to confirm up-to-date bank details from you to make the payment.