Venture capital and private equity in the USA: Outbound investments

Written on 27 Jan 2016

 

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Venture capital sector developments

Whilst Silicon Valley is without doubt the birthplace of venture capital and continues to dominate the globe in terms of funds committed, Europe’s VC industry has developed into a significant player in the global support of entrepreneurs. The development of European VC has led to a number of tech hubs aspiring to replicate the success of the Californian leader. And entrepreneurial clusters like Tech City in London, Silicon Allee in Berlin and Silicon Sentier in Paris are attracting the attention of US firms.

Although venture capital investments are essentially the same type of transaction whatever the jurisdiction, certain elements and approaches are distinctly different and can often cause confusion or unnecessary dispute when applied across borders. Some of the key differences which a US investor may notice include:

  • Differences in documentation and terminology: For example, a US investor is used to seeing a separate Stock Purchase Agreement, Stockholders’ Agreement and Investor Rights Agreement but in the UK these are wrapped up into one Investment Agreement (sometimes called a Subscription and Shareholders’ Agreement).
  • Apportionment of risk through warranties and representations and liability: For example, a US firm may typically carry out a light touch due diligence exercise and rely on a full set of warranties and representations with few limitations, whereas a UK deal would typically involve fuller due diligence (legal, financial, market) and limitations on liability under warranties and representations, with top-up liability coverage given by warranty and indemnity insurance.
  • Different tax efficient schemes: For the incentivisation of key managers, for which local law advice is essential.
  • A longer legal process: In the US, there is widespread use of industry-standard documents prepared by the National Venture Capital Association. Other jurisdictions have not yet developed this breadth of templates, though the UK’s British Venture Capital Association’s templates are getting traction in the UK market. The need for local advice for what is market and for the production of quality documentation for that jurisdiction is key.

Outlook for 2016

We expect Europe will continue to be attractive place for US firms to do business but they will be sensitive to global macro-economic trends and to legal and regulatory developments driven by the European Commission and other EU institutions.

The dominant topic for the year will be Brexit (the UK’s referendum on whether or not to leave the EU, which must take place before the end of 2017 and is rumoured to be happening perhaps as early as June 2016). The UK is likely to vote to remain – the polls show that this will be the most likely outcome, though they are narrowing. We will be tracking this important topic for our clients.

Key deals

Targeting Europe continues to be a key element of the growth strategy of many US investors. With our established office in Silicon Valley and newer bases in New York and San Francisco, we have used our experience efficiently to guide many US clients through the challenges of international expansion including:

  • Airbnb: Advising on the acquisition of Crashpadder, a UK marketplace connecting people who need a short-term living space to those who are offering it.
  • Kleiner Perkins: Advising on a major investment in SoundCloud, the leading social sound platform.
  • RocketFuel: Advising this fast-growing ad targeting company on all aspects of its European launch and continued expansion.
  • SurveyMonkey: Advising on its UK expansion and growth across Europe.
  • Beats: Advising on its European growth and acquisition by Apple.
  • Google Ventures: Advising Google Ventures on the series C round in Kobalt Music.