A NGEL T RANSACTIONS : I N S EARCH O F T HE I DEAL S TRUCTURE by Delilah Panio with input from Kevan Cowan, Warren Dowd, Alain Lambert and Wendy Thompson C HAPTER 3
S U M M A R Y By pooling assets, angel
investors can share the risks and leverage the expertise of partners. They can also participate in offerings with high-quality private growth companies, which may not be available to the individual angel investor. This article examines two specific types of structures that facilitate group investing – limited partnerships and capital pool companies – and discusses the benefits and disadvantages of each. It also outlines two other structures, which are currently unavailable, but are worth considering for the future.
INTRODUCTION
In response to current market conditions, angel investors are looking for ways to minimize risk while contributing to the development of new ventures. Clustering or investing in groups has been identified as one means for angel investors to reduce transaction costs while increasing opportunities and returns.
By pooling assets, angel investors can share the risks and leverage the expertise of partners. They can also participate in offerings with high-quality private growth companies, which may not be available to the individual angel investor. This approach also gives investors more negotiating power with respect to the terms of the financing and the direction of the business. And by pooling their money, angel investors can present an attractive value proposition to growth companies that readily competes with formal venture capital dollars. While there is no “ideal” angel structure, this paper will address two specific types of structures that facilitate group investing: limited partnerships and the Capital Pool Company TM (CPC TM )program of TSX Venture Exchange TM . It also outlines two other structures, which are currently unavailable, but are worth considering for the future. LIMITED PARTNERSHIPS Angels have used limited partnerships for many years as a way to bring together capital and expertise for specific investments. Syndication allows for greater leverage of funds than individual investors can achieve on their own. HOW LIMITED PARTNERSHIPS WORK In Canada, a limited partnership is formed between a general partner, who is liable to all creditors of the business, and limited partners, whose liability is limited to the capital contributed to the partnership. Limited partners are not allowed to participate in the management or operations of the business or they risk losing their limited liability status.
Capital Pool Company, CPC and TSX Venture Exchange are trademarks of TSX Inc.
21
Powered by FlippingBook