Speed@BDD Sets A Precedent In Its Investment Terms

Speed@BDD Sets A Precedent In Its Investment Terms

by speed · December 30, 2016 · in Announcements

Great news entrepreneurs! Speed@BDD is setting a precedent in the local market by becoming the first cash investor to no longer require preferred shares. Our shares will be similar to the founders’ shares, i.e. common shares.

Common shares, also known as ordinary shares, are a security that represents ownership in a corporation. Holders of common shares exercise control by electing a board of directors and by voting on corporate policy.

Preferred shares, also known as priority shares, are a class of shares that have higher claims on the company’s assets and profits than common shares do, usually in the payment of dividends and upon liquidation.

Common shares are usually held by the founders and preferred shares are held by Venture Capital investors.

One of the main reasons why investors require preferred shares is the liquidation preference as preferred shareholders receive the liquidation proceeds before common shareholders.

From day one, Speed@BDD required preferred shares with a liquidation preference in return for the $30,000 invested in its startups. What that meant in practice is that if the shares that we owned in the startup joining the 3-month acceleration program were valued lower than $30,000 when the startup was being sold or dissolved, we had the right to trigger the liquidation clause and receive the full $30,000. In the case where the startup was being sold for less than $30,000, we would take whatever amount that is available ahead of the holders of common shares.

Our experience over the past year showed us that the liquidation preference and preferred shares clauses in the contract are actually cumbersome for the entrepreneurs. They were adding complexity to the legal work upon joining Speed@BDD and at later stages of investment. We understood quickly that the rights associated with preferred shares will rarely be triggered in practice, especially at our stage. Given that our mission is to make entrepreneurs’ lives easy, we started considering other solutions.

The tipping point was when we joined the Global Accelerator Network (GAN), where we got access to a new set of legal resources. In addition, we were able to consult with top accelerators around the globe to get their input on the matter. Most international accelerators started with taking preferred shares and liquidation preference. Subsequently, and after years of operation and experience, they realized what we began to realize ourselves; it was really an unnecessary burden!

In the spirit of simplifying the entrepreneurial journey and adhering to international standards, we, at Speed@BDD, have elected to no longer require preferred shares and liquidation preference in return for our cash investment. This will retroactively apply to startups from Cycle I, II and III.

Generally speaking, it is a standard practice worldwide for post-acceleration investors to require preferred shares in return for their money. As an entrepreneur, you will always need to understand the terms of investment and to watch out for the conditions associated to preferred shares. At Speed@BDD, we provide our startups with multiple legal workshops to educate them about the complex legal concepts they will have to deal with during their entrepreneurial journey. This knowledge empowers them during negotiations with investors so they can make the right decisions for themselves and their startups.

If you are not a Speed@BDD startup already, what are you waiting for? Apply now!