A founders' Christmas wishlist… - Boodle Hatfield

Your lawyers since 1722

13 Dec 2023

A founders’ Christmas wishlist…

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5 min read

Another year, another dollar. And what a year.  We all know that late 2022 was something of a cliff edge moment; increased interest rates brought the end of cheap money and as a result investors took stock of their position. 

Funding rounds became smaller and monies advanced tended to come from existing investors rather than new ones.  

As we moved through the year, confidence began to return, though there has been a distinct shift in agendas – a path to profitability is now much higher on the list for many investors.  

As we ready ourselves for the Christmas break, here are some thoughts about what next year could look like. 

So what could be next for 2024? 

We are expecting the following will be key themes for next year:

  • Consolidation. Unprofitable companies with short runways will first seek new capital but will then otherwise have to look to cut costs or seek to sell or wind up.  The abundance of capital over the past few years has driven competition in many different sectors. Though they may not all be profitable, and may not all survive, many have created great products and hired great people.  The "winners" in their respective fields may well seek to take advantage of their position and we expect to see more consolidation, whether by way of M&A activity (this may be of interest to those looking at potential M&A activity) or hiring key personnel out of failing companies.   
  • New investment funds. Funds are always cyclical but now inflationary pressures seem to be settling, we know many are in the process of establishing new funds. Naturally the new capital will need deploying in due course. As touched on above, the focus really is now on profitability so conducting proper diligence on investments is increasingly important.  

    Some investors may have been "burnt" over the past few years and so we are expecting funds and others to take a more considered approach. Cookie cutter investing may be quick and cheap but can be problematic for all parties in the long term.
  • Scale up expansion.   Companies which have survived the events of the past year are now strong businesses and many will be looking to take the 'bull by the horns' in the New Year. Founders leading companies at this point in their lifecycle tend to take the opportunity to sort out so-called "tech debt" (i.e. where getting a product to market has come at the cost of a perfect methodology). It is also, from a legal perspective, an opportunity to (if I may, and rather ambitiously, try and coin a new term) deal with "ops debt". This means dealing with all the things – like proper HR functions, data protection policies, terms and conditions, reviewing employment contracts to ensure ongoing compliance and establishing share schemes - which have not had the attention they deserve in the excitement that is running a fast-growing business. 

    More often than not, these things are dealt with on a reactive basis as opposed to a proactive basis and are neglected until an issue arises.  

    The good news is that issues can be nipped in the bud.  For those seeking an exit in the future or looking to raise institutional money, dealing with these matters is a must, and helps avoids headaches in the future.

And what about a definite change?

The financial promotions rules are set to change at the end of January 2024.    These are important because they govern the ways in which entrepreneurs may share information about funding rounds with potential investors. 

What's the general rule?

The general rule is that promotions made in the course of business containing an invitation or inducement to engage in an investment activity are “financial promotions” and cannot be made unless the content is approved by an authorised person or otherwise covered by an exemption.  To do so is a criminal offence. 

Why do these rules exist? 

Investing in an unlisted company is inherently very risky, and very illiquid.   The rules reflect a wider policy decision to ensure that investors know what they are getting into, and only those who can afford to take the risk do so.   

Private companies carrying out a funding round are caught by these rules.    

What's changing? 

Two of the most common exemptions are being updated:

  • “High Net Worth Exemption”: individuals will have to have income of at least £170,000 in the last financial year or net assets of at least £430,000 throughout the last financial year, excluding their permanent residence.   This is a significant increase from the current position (£100,000 and £250,000 respectively). 
  • “Self-Certified Sophisticated Investor Exemption": individual must now have been a director of a company turning over at least £1.6M within the last two years. The requirement that the person has made more than one investment in an unlisted company in the previous two years has been removed; this is largely due to the fact that it has become much easier to make investments without taking advice, so the government has decided that it does not really reflect sophistication any longer.   

The other options (having been a member of a network or syndicate of business angels for at least six months prior and working or have worked in the previous two years in a professional capacity in the private equity sector or in the provision of finance for SMEs) remain the same.   

The format of the statements is also being updated to make it much clearer what investors are agreeing to waive.   

Is there anything new to know about? 

There is also a new obligation for the person or company sharing the information.  The warning must include:

  • the name of the person making the communication or on whose behalf the communication is made;
  • an address to which the recipient should send further requests for information; and 
  • (if applicable) the company details of the person making the communication. 


As flagged, it is important to get the basics right so if you have any questions, do get in touch.  

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