I posted before about benefactors and it got a lot of hits and comments.



Here are the legal thoughts;

Benefactor/Founder/Agent

This route assumes that there is

•    a founder with a project, which can only be progressed with financial assistance

•    a benefactor, who would be willing to take a stake (if the project proceeds) but would run the risk that that project might not succeed (in which case he/she would probably recover nothing of value)

•    an agent who will find and place a willing benefactor with a willing founder; arrange the legal documentation and then offer continued oversight, as the project progresses

Newco will be created

Founder will be allotted (nearly all) shares in Newco

Founder assigns IPR in the Project to Newco

Founder agrees with Newco (and Benefactor) to work on the Project

Agent will take a small shareholding in Newco as an arrangement and monitoring fee

Agent will have a warrant, increasing that shareholding to a % stake, on success in the Project or an Exit-type event.

Benefactor will provide a personal loan to Founder, so that Founder has the personal means to work on the Project

Benefactor can set benchmarks on drawdown payments eg monthly/achievement of milestones

Founder will provide a security for the loan, but limited only to the Founder’s shares in Newco

Loan is convertible into an agreed % stake

Benefactor’s only recourse (in the event of non-payment) is to those  shares

Parties enter into a shareholders agreement to record their respective rights and obligations

Newco adopts tailored articles of association, to reflect the shareholders agreement