When an exit event happens in relation to a company (the company is sold or goes public), investors entitled to the amounts received pro rata to their holding (excluding permitted expenses set out in the relevant investment agreement). However, profit is not guaranteed at a liquidity event (exit). Below, we have listed three different scenarios for how funds will be allocated in case of a liquidity event:
Successful Exit with Profit
If the syndicate exits successfully and in exchange receives the initial investment amount and profit, then firstly, any additional costs related to the SPV (either acting as a single investment vehicle or a nominee) throughout its lifetime (also referred as permitted expenses) After that, all current investors will receive the nominal amount of money per unit of the investment (Shares, Share units or Loan notes). For example, if the initial investment unit price (from the primary market investment, not the secondary market trading) was €1 and you own 200 investment units of the corresponding syndicate, you are entitled to get back €200. If the company has generated profit via the exit, the residuals are paid as follows:
(i) to the Lead Investor at a previously agreed carry fee from the profit
(ii) to Fundy at an agreed carry fee from the profit, and
(iii) the rest is distributed between the investors on pro-rata basis.
Successful Exit without Profit
If the money received from the syndicate’s investment doesn’t enable the syndicate to pay out the nominal value of the investment, it is paid between the investors on pro-rata basis. Fundy and the Lead Investor do not receive any remuneration (carry fee). In such case, the investors receive less money than the nominal value per investment unit regardless of the price on the secondary market at that point of time.
Unsuccessful Exit
If the initial investment fails, the company goes bankrupt and closes the business, and the syndicate does not receive any money from the investment. Then the syndicate is liquidated and current investors do not receive any funds.
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