Overcoming Structural Challenges for Seed Investment Success
A newly established early-stage tech startup faced several hurdles while preparing for a $2.5 million seed investment from their new US-based investors. These investors favoured a US TopCo structure to align with their familiarity of tax implication of the funding structure and conform to market norms. Ahead of the fundraising, the two founders, holding 54% and 46% ownership respectively, sought to restructure the company’s ownership to better position themselves for the investment.
FD’s Approach
Our tailored approach provided a comprehensive, tax-efficient solution to restructure the business and establish a US TopCo with appropriate consideration for the founders share capital and likely future dilution.
1. Delaware Flip Consultation
- Providing guidance of the process, weighing the pros and cons, sharing the timelines and costs associated to ensure we align with the client needs.
- Obtaining clearance for CGT (Capital Gains Tax), Stamp duty implications to ensure no additional tax burden during the flip.
2. Cap Table Reorganization
- Reorganized the ownership structure from 54 – 46% to 51-49% reflecting the desired split between the two founders.
- Delivered clear guidance on the value of shares awarded and the tax liabilities associated.
- Ensured the adjustments met tax efficiency requirements while protecting founder equity.
3. Efficient and Quick Turnaround
- Moved from the initial consultation to execution in just 3 weeks.
- Delivered a clear roadmap, addressing all identified issues efficiently.
Comprehensive Solutions for Investment Readiness
By addressing key tax risks, securing necessary clearances and optimizing the cap table structure, we positioned the company for successful fundraising and future growth. Our swift and cost-efficient approach ensured the founders could confidently move forward with their investment plans, setting a strong foundation for long-term success and stability.
- Risk Mitigation: We addressed key tax risks, securing CGT clearances in just four days.
- Investor Alignment: By completing the Delaware flip, we positioned the company to meet US investor requirements, enabling the $2.5 million seed investment to move forward.
- Cap Table Structure: We educated the founders on the implications of the flip and enabled them to establish the US TopCo with the intended cap table structure.
- Speed and Expertise: Our familiarity with similar transactions and ability to act quickly helped enables end to end transaction within 3 weeks.
- Cost Efficiency: Our guidance provided a sensible, logical approach that kept costs reasonable for a pre-funded company.
Next Steps
If you’re looking to expand to the US for funding and need expert guidance on navigating unique tax implications, we’re here to help you every step of the way. Contact us today!