Leapfunder Academy

The First Closing Date is the date at which an investment round needs to have reached the Minimum Investment in order for the investment to go ahead. If a round does not reach the minimum level, the invested money will be refunded to the investors. An investor thus never risks investing in a company that is underfunded.

If the round does reach the Minimum Investment level, the money - which is held temporarily under supervision by an accountant or attorney - can be accepted by the company and will be transferred to the bank account of the company. Investments that are made after this time can be released directly to the company. The First Closing Date and the Minimum Investment amount are always mentioned in the Information Memorandum of the investment round.

Investment in a round can continue until the Final Closing Date. After this new investors can no longer subscribe. If you subscribe for an investment before the Final Closing Date, but your bank payment is delayed, you have a one week grace-period. If the cash arrives within a week of the Final Closing Date then the company can still accept your investment. Cash that arrives more than a week late is returned automatically, with no cost to the investor.

With early-stage companies it is practically impossible to determine the value of the shares. If you invest in shares at the wrong price you take a big risk: if the price is too low the entrepreneur suffers, if the price is too high the investor suffers. To avoid this the convertible note was invented. It allows the valuation of shares to be postponed until more information is available.

With a convertible note the investment is first recorded as a kind of 'loan': the company gets the money, but doesn't hand out shares yet. Only later - when the value of the company becomes clearer - will this 'loan' be converted into shares. With Leapfunder this conversion takes place as soon as a larger (professional) investor makes an investment in shares. The early Leapfunder Note investors now also receive the shares at that price. However they will receive those shares with a discount to compensate them for getting in early.

There is a lot of explanation on the web about how convertible notes work. In essence the convertible note is form of equity, which is at first presented as a bond or loan. The company will receive the investment cash straightaway - in return for a bond or loan - but they will hand over the shares only later. This is called conversion. At conversion the holder of the convertible note will obtain shares in the company cheaply with a set discount to the price of the shares at the time of conversion. In addition the investors will also receive interest on the amount of their convertible note over time. This interest is also repaid with shares. Finally, the company has often also set a 'cap': a maximum price for which investors will receive shares in the company. If the price of the shares is actually higher than the cap the investors will still get them at the cap price as a maximum. This makes it even more attractive for the investors. The discount, the interest and the cap are all rewards to the investor for investing in the company early.

The Leapfunder Note is a form of the convertible note, in which after conversion the shares are held by a Special Purpose Vehicle ("SPV") and the investors receive SPV Shares that represent shares in the company. The conversion always happens, sooner or later. Because the conversion to shares always happens people sometimes call an instrument like the Leapfunder Note by a new name: convertible equity.

The Interest that investors will receive over their Leapfunder Notes is described in the Information Memorandum of the company. If the Information Memorandum does not mention this, the Interest is automatically set at 10% per year. The Interest is simple non-compounding interest: that means you don't get Interest on the Interest, only on the original value of the Leapfunder Note. The Interest is not paid out in cash, rather it is converted into shares along with the rest of the Note.

When the Leapfunder Note converts into shares the Leapfunder investors get the shares with a Discount with respect to the price of the shares at that time. The Discount on the price of the shares serves to reward investors for the risk they have taken by investing in the company at an early stage. In short, because of the Discount early investors will receive more shares for their money than later investors do.

A startup can offer an extra % discount on their convertible.The startup sets an specific threshold for their funding round, this is called the minimum investment amount. If an investors invests before that amount is reached, the investor will receive the extra % discount. After that, the normal discount will apply.

Often a Leapfunder Note also has a Cap. This is the maximum pre-money valuation that can be used during conversion into shares. The investor benefits from this Cap: if the company has increased in value beyond the Cap, then investors via a Leapfunder Note will receive shares for the lower 'capped' price as a maximum.

In the standard Leapfunder Note the investor will benefit from the Discount OR the Cap, never both at the same time. That means that, after applying the Discount, you look at the effective price that the investor gets for his SPV Shares. If that price is higher than he would have gotten if the pre-money valuation had been set at the Cap, then that 'Capped' price is used instead.

In older versions of the Leapfunder Note - in version 4 or lower - investors would get the benefit of both the Discount and the Cap. That means that first the investor would be given the benefit of the Cap if the pre-money valuation had increased beyond this value. The Discount would subsequently still be applied to that Cap. In later version of the Leapfunder Note - version 5 or higher - the Discount is no longer applied if the Cap is used. In some cases applying the Discount would actually give a better result for the investor than applying the Cap: in this case the investor gets whatever is better for him.

The Leapfunder Note will be converted into SPV Shares representing company shares when:

• A large investor (>€100,000) invests cash in new shares in the company
• The company is acquired, or there is some other form of change of control

In these situations it is clear what the value of the shares will be. After all, the shares are being bought / sold by the respective parties for a clear price. This share price is then used as the Conversion Price.

If the scenarios listed above do not occur, and we reach the Final Conversion Date, then the Leapfunder Notes will be automatically converted. An external expert will be appointed to determine the value of the shares (Fairness Opinion). To reduce costs the startup can prepare a proposal for a valuation together with investors. If the investors approve a proposed price with a > 75% majority then that price can be used for conversion. If the investors only approve the price with > 51% then an independent expert will be called in to examine the proposal and establish that the price falls within an expected market value range. With that confirmation the price can be used for conversion.

The Leapfunder XL Note is exactly the same as the regular Leapfunder Note except that it is converted with a somewhat larger investment in new shares. The Leapfunder XL Note is converted into SPV Shares representing company shares when:

• A large investor (>€500,000) invests cash in new shares in the company
• The company is acquired, or there is some other form of change of control

In these situations it is clear what the value of the shares will be. After all, the shares are being bought / sold by the respective parties for a clear price. This share price is then used as the Conversion Price.

If the scenarios listed above do not occur, and we reach the Final Conversion Date, then the Leapfunder Notes will be automatically converted. An external expert will be appointed to determine the value of the shares (Fairness Opinion). To reduce costs the startup can prepare a proposal for a valuation together with investors. If the investors approve a proposed price with a > 75% majority then that price can be used for conversion. If the investors only approve the price with > 51% then an independent expert will be called in to examine the proposal and establish that the price falls within an expected market value range. With that confirmation the price can be used for conversion.

Technically it makes no difference whether the qualifying investment is coming from an Angel or from a VC. However VCs often required so-called Preferred Shares. These are shares that have additional rights such as a liquidation preference or an anti-dilution. If you are not familiar with those concepts: please read about them before you go into negotiation with any professional investor! Because the Preferred Shares have so many extra benefits they are more expensive than Ordinary Shares. That means that the price of Ordinary Shares in a VC transaction is often a little lower than the price of Preferred Shares stated in the contracts. To determine how much lower you can either make reasonable proposal to the Leapfunder investors which they agree to, or let an independent expert make a ruling. If you want to avoid that, you can also simply grant any additional rights that affect the valuation as a kind of bonus on top of any Ordinary Shares that you are issuing. We can help you through the process. The Leapfunder Note is set up so that all this can be settled after you close your deal, so it shouldn't affect your closing.

At conversion the Leapfunder Notes held will be converted into SPV Shares. At this time the company issues new shares that become property of a Special Purpose Vehicle ("SPV"). This SPV has the form of a StAK in the Netherlands, a KG in Germany, or a K/S in Denmark. In the Netherlands the SPV Shares are in the form of “Certificaten” issued by the StAK. In Germany and in Denmark investors get a % interest as a limited partner in the KG or K/S respectively. Each SPV Share corresponds 1-1 to company shares and comes with the right to all cash proceeds from that share. Each SPV Share therefore has exactly the same value as the company share itself. The main difference is that the Special Purpose Vehicle ("SPV") represents the SPV Shareholders towards the company. The SPV sends a single representative to the shareholder's meeting of the company. This representative can be elected: usually it is one of the more active investors holding SPV Shares. Having a single representative for all the investors ensures that decisions can be made more efficiently.

The whole outstanding Leapfunder Note - the invested amount including Interest - will be repaid with SPV Shares representing company shares. In other words, if an investor has invested €1,000 he will receive at least this value, plus Interest, in shares. Besides Interest investors also benefit from a Discount on the share price. This % Discount is agreed when the Leapfunder Note is issued. Lastly, there is often a Cap on the conversion price used. The Cap is the highest share price that will be used for conversion. So if the company is actually worth more than the Cap then the investors still get the shares for the lower 'capped' price.

The Interest, the Discount and the Cap are there to reward the investor for taking the risk of investing in the company early. Each feature is there to make sure that earlier investors get more shares for their money then later ones. Of course the exact number of shares the investor receives depends on the share price at the time of conversion.

Example: An investor has invested €1,000 in a Leapfunder company and receives a Leapfunder Note with an Interest of 10% and a Discount of 25%. Two years later a large investor invests €300,000 in the company at €10 per share. Since Leapfunder investors receive a 25% discount on this share price, they will be able to obtain shares at €7.50. The interest is 10% * €1,000 = €100 for each of the two years. This interest in added to the principal of €1,000, making the total outstanding amount €1,200. In total the investor will then receive €1,200 / €7.50 = 160 shares. The value of these shares at Conversion is then 160 * €10 = €1,600. After two years the value of the initial investment of €1,000 has changed to SPV Shares representing company shares worth €1,600.

Only in the Netherlands Leapfunder uses a StAK as the Special Purpose Vehicle ("SPV"). The StAK is the oldest most trusted structure for pooling shareholders in the Netherlands. A Stichting Administratiekantoor ("StAK") is a not-for-profit foundation that holds the shares in a company for its investors. The investors receive Certificaten for these shares in a 1:1 proportion. The holders of Certificaten can vote within the StAK on a number of issues, but the StAK has only one representative in the company’s shareholders meeting. Having a single representative for all investors ensures decisions can be made more efficiently. The StAK is tax transparent: the StAK itself pays no tax on any profits on the shares. Of course the investor has to pay tax a usual on any shareholding.

Only in Germany Leapfunder uses a Kommanditgesellschaft ("KG") as the Special Purpose Vehicle ("SPV"). The KG is the most trusted structure for pooling shareholders in Germany. A KG is a limited liability partnership that holds the shares in a company for its investors. The investors receive a % interest as a limited partner in the KG that corresponds to company shares in a 1:1 proportion. The limited partners are the owners of the KG and can vote within the KG to make sure they collectively control the SPV. Being a limited partner in a KG is actually just like being a shareholder in a normal company: you have limited liability. The general partner of the KG is actually the startup itself, so the startup carries all the liability. This implies that the SPV will be called Startup U.G. & Co KG. The KG has only one representative in the company’s shareholders meeting, who is elected by the limited partners. Having a single representative for all investors ensures decisions can be made more efficiently. The KG is tax transparent: the KG itself pays no tax on any profits on the shares. Of course the investor has to pay tax a usual on any shareholding.

Only in Denmark Leapfunder uses a Kommanditselskab ("K/S") as the Special Purpose Vehicle ("SPV"). The K/S is the most trusted structure for pooling shareholders in Denmark. A K/S is a limited liability partnership that holds the shares in a company for its investors. The investors receive a % interest as a limited partner in the K/S that corresponds to company shares in a 1:1 proportion. The limited partners are the owners of the K/S and can vote within the K/S they collectively control the SPV. Being a limited partner in a K/S is actually just like being a shareholder in a normal company: you have limited liability. The general partner of the KG is actually the startup itself, so the startup carries all the liability. The K/S has only one representative in the company’s shareholders meeting, who is elected by the limited partners. Having a single representative for all investors ensures decisions can be made more efficiently. The K/S is tax transparent: the K/S itself pays no tax on any profits on the shares. Of course the investor has to pay tax a usual on any shareholding.

Absolutely. The Special Purpose Vehicle ("SPV") can use any voting rights that go with the shares in the startup’s shareholder meeting. In this way the interests of the Leapfunder investors are represented. At the initiative of at least 10% of the investors they can elect their own representative that will go to the startup’s shareholders meeting and vote with the SPV's company shares. If the investors do not elect their own representative the SPV cannot vote: its administrative management consists of employees of the startup and the rules of the SPV prevent them from casting a vote in the startup's shareholders meeting. They have a potential conflict of interest.

The administrative management of the Special Purpose Vehicle ("SPV") will be formed by the startup itself.So the startup will manage the SPV from an administrative perspective.

Of course the management of the SPV should always act in the interests of the investors. The SPV management has to vouch for this. If there is a potential conflict of interest then the SPV can only do anything after the investors have been consulted during a specially called investor meeting.

In general: the investors themselves always decide whether the shares held by the SPV will be sold to anyone. They control their property. All material decisions are subject to approval by the investors directly, including: signing a shareholders’ agreement, appointing a non-executive director, voting on a merger of the startup, or anything at all in which the administrative management of the SPV may have a conflicting interest.

At the initiative of 10% of the investors they can elect their own spokesperson. This person can vote with the shares of the SPV in the shareholders meeting of the startup, and can act as a spokesperson of the investors during negotiations outside of the shareholders meeting. Appointing a spokesperson in this way is not mandatory, but it is recommended in many situations. Usually the representative is one of the more active investors. For any important decisions, such as selling the shares, this representative requires approval from the other investors just as described above.

No. If the investors cannot agree what to vote in a company’s shareholder meeting there is an alternative. At the initiative of 20% of the investors they can split the votes of the SPV. Now the votes of the SPV in the company’s shareholder meeting will be split to represent the differences of opinion.

Not really. When the Leapfunder Note converts into shares the Cap represents the highest pre-money valuation that will be used. Therefore it also tells you the minimum number of shares that you will get for your money. (If you know the highest price you pay, then you know the minimum number of shares you get.) However you don't really know what % of the company you will get. There are usually several new investors that come in during the Conversion. Of course they will also get a % new shares, and you get a dilution. That is sometimes a disappointment, and it's a good idea for the start-up to warn investors that this can happen.

There can also be investment rounds on Leapfunder with an agreed share price. This is only possible if the minimum for the round is > EUR 100k, or if there was recently an investment round with an investor > E100k at the stated share price. That investor is used as confirmation that the share price is reasonable. Normally the share price is expressed in the form of a pre-money valuation of all outstanding shares. In a Leapfunder Straight Equity transaction the cash is transferred to the startup immediately after the investments are accepted. The investors receive their SPV Shares in the months following this. During that brief transition period the investors already have rights: until they receive their SPV Shares they are formally bondholders.

In exceptional cases large investors are allowed to invest using the Leapfunder Note without their shares going into an SPV. They simply get their shares directly. This system is only used for very large amounts. Regular Leapfunder Note investors can becomes Leapfunder Direct investors later on: if they make a large follow-on investment in shares at a later date. As part of that later investment the earlier Leapfunder Note investment can be converted to Direct status.

Leapfunder charges a moderate cash success fee when you raise your round. There is also a starting fee. However, on the whole we only want to be successful if the start-up and the investors are. For this reason we agree an option to invest in each start-up. We can invest at most the amount of the success fee, on the same terms as the other cash investors. This right to invest takes the form of a warrant (options) on shares for the value of our success fee. Because we have this warrant our relationship with each start-up is long-term: we are always ready to assist, and will stand behind the company as long as is needed.

Our investment structure has been developed to protect the interests of small investors and consumers. There is much legislation on this topic. We follow the changes in legislation closely. This is monitored by external lawyers and in consultation with the relevant regulatory agencies.

Leapfunder was founded by a group of Angel investors who wanted to use this tool themselves. Leapfunder was funded through a Leapfunder investment round itself: we do as we say.

A Fairness Opinion is an independent valuation of the company. This can be performed by an accountant or a bank.

Create an account on Leapfunder and our team will help you find the answers!

The easiest way to start a round with us is to get in touch with an account manager or attend one of our information sessions. Any of our investors or alumni companies can make the introduction.

In order to attract investment via the Leapfunder method you need to write an Information Memorandum. This contains a clear description of your business plan. If you already have a business plan you can probably use a large part of this for your Information Memorandum. Besides a business plan your Information Memorandum also contains the terms of the investment round, such as the Minimum Investment, the First Closing Date, the Final Closing Date, the Interest, the Discount, and the Cap. More information on this is written in the explanation for entrepreneurs section.

Your team needs to attract the right competencies to perform the market analysis and write the financial section. Leapfunder also provides advice and training. In addition, there is ample literature available online. There are also many competitions which can help you develop your business plan.

Yes. In order to attract investment via the Leapfunder method you first need to start a limited liability company. In any country startups will tend to use a different kind of legal entity, examples are the B.V. for the Netherlands, the U.G. for Germany, ApS for Denmark, LTD for UK. There may be specific limitations depending on the legal form you choose: please contact us for a detailed discussion. The limited liability company is necessary to be able to issue shares to your investors. Information on how to start a limited liability company in your country will be available from the trade registry or a lawyer or notary.

Leapfunder is currently designed for campaigns that are conducted from the Netherlands or Germany. In principle any EU legal entity can raise funds with Leapfunder as long as they are intending to conduct a campaign from the Netherlands or Germany. For this reason: if your legal address is outside of NL or DE then investors from your own country of residence will be excluded. That is just to make sure that your country of residence doesn't become the center of your campaign. Due to popular demand Leapfunder is working to expand to other countries. If you get in touch with us we can discuss possibilities in your country.

A Leapfunder investment can be rather contagious. Many investors like to see other investors invest in a company first before they themselves decide to join. This provides security. In most cases you will need to find those first investors yourself. Enquire among people who know you personally or who will benefit from your concept the most. Here you often find the pioneers that make the first investments. Once the ball starts rolling usually more outside investors will join.

Eventually your investors will be pooled through a Special Purpose Vehicle ("SPV"). The exact legal form depends on the country of residence of your company. In the Netherlands we use a Stichting Administratiekantoor ("StAK"), in Germany it is a Kommanditgesellschaft ("KG"). The investors receive SPV Shares which entitle them to the economic proceeds from their shares in your company. These SPV Shares also give them control rights over the Special Purpose Vehicle ("SPV"). The Leapfunder SPV is designed to give exactly the same rights to investors in every country for which we have an SPV. The legal forms have to be slightly different because of local law, but they all do the same. That means that once an investor is familiar with how the Leapfunder SPV works in any country, then they can invest in any other country confidently.

In the Netherlands investors will be pooled through a Special Purpose Vehicle ("SPV") in the form of a Stichting Administratiekantoor ("StAK"). A StAK is a not-for-profit foundation that will own the shares and manage the voting rights on behalf on investors. The investors receive SPV Shares ("Certificaten" for a StAK) which entitle them to the economic proceeds from their shares and give them control rights over the SPV. It is explained in more detail here.

In Germany investors will be pooled through a Special Purpose Vehicle ("SPV") in the form of a Kommanditgesellschaft ("KG"). A KG is a limited liability partnership that will own the shares and manage the voting rights on behalf on investors. The investors receive SPV Shares in the form of a % partnership in the KG as a limited partner. This entitles them to the economic proceeds from their shares and gives them control rights over the SPV. It is explained in more detail here

In Denmark investors will be pooled through a Special Purpose Vehicle ("SPV") in the form of a Kommanditselskab ("K/S"). A K/S is a limited liability partnership that will own the shares and manage the voting rights on behalf on investors. The investors receive SPV Shares in the form of a % partnership in the K/S as a limited partner. This entitles them to the economic proceeds from their shares and gives them control rights over the SPV. It is explained in more detail here.

Well. Not really. Leapfunder is an Angel funding platform. We feel a startup should have a meaningful direct relationship with each of its equity investors. Investors on Leapfunder are admitted by invitation only, and the minimum investment amount per investor is pretty high. We actually limit the maximum number of investors that you can admit. If you would like to know the limitations that apply in your jurisdiction please get in touch with us.

With early-stage companies it is often important that you have personal contact with the company. We recommend investors to carefully evaluate the plan, the team, the market and the risks. Opinions and recommendations of other investors can also influence your decision. It is possible of course that the company turns out to be unsuccessful. In this case it is you still need to think it was worth the try.

Yes. You invest in the company directly. When you transfer money your investment will first be held safely, under supervision by a chartered accountant or attorney. The company cannot yet access the funds. The money will be released to the company once the Minimum Investment has been reached.

Yes, in the end you are. In the beginning you will provide the company with investment in return for a convertible note. Later this convertible is converted into shares which are held for you by a special Special Purpose Vehicle ("SPV"). The SPV issues SPV Shares to you: these SPV Shares give you qualified control over the SPV, and all rights to the profits from the underlying shares in the company. Sooner or later this conversion into SPV Shares will happen, so you can assume from the start that you are investing in shares. It is explained below exactly when the conversion to shares takes place.

Yes this is possible. But you cannot invest if you are in the United States, because of local legislation there.

Absolutely. If the company you invested in does not reach the required Minimum Investment before the First Closing Date, all investors get their money refunded.

Nothing much. All our legal contracts are directly between the investor and the startup. The administration and handling of those contracts is with an independent accountant or attorney, depending on the jurisdiction in which the startup operates. This is all paid for by the startup. A copy of the administration is automatically shared with each investor. If Leapfunder itself is no longer active the investment contracts will simply be completed and executed by these independent professionals. Your investment or the administration is never in jeopardy.

One of the unique selling points of raising money through the Leapfunder method is the investor network the entrepreneur will obtain. Investors can add value by opening up their network or by providing services to the entrepreneur. This is not required, but it helps the entrepreneur with the development of the company in which the investor invested.

The CEO of the company is required to send an update each month with relevant information. In addition you have the right to a copy of the company’s annual report. In most cases the CEO will also organize face-to-face sessions with its investors.

If the CEO misses a CEO Update – and this happens, it's the real world – then: there is no penalty …unless an investor complains! If any investor explicitly asks for a monthly CEO Update it has to be sent within a month. If the startup refuses such a request 3x in any 12 month period then the whole investment can be undone. So the CEO is allowed to forget a monthly update, but the CEO is absolutely not allowed to ignore a specific request for an update from any investor.

Not really. If the company wishes to do something else with the money raised via the Leapfunder approach it will need to get permission from the investors. This can happen through a vote. The outcome of the vote is binding for all Leapfunder Note -holders. Once the notes have been converted into shares there is somewhat more flexibility since the Information Memorandum only applies to the notes, not the later SPV Shares. If a company cannot say exactly what they will do with the money they raise, it needs to state clearly what points of uncertainty there are, and the risks that this will carry. The point of this is that investors will want to know exactly what they are investing in.

Just as with regular shares, you will receive money once you sell your shares or when the company gives out dividends.

You take a risk when you invest in a company. If the company is liquidated you probably will receive little or no money back. In the beginning, when you still hold Leapfunder Notes, you will have priority over shareholders. So during liquidation you will be paid before shareholders receive anything. After the conversion to shares you have the same rights as shareholders do.

When the startup is acquired by another company or person, then the Special Purpose Vehicle ("SPV") will receive money for the shares that are sold. This will be distributed to the corresponding investors. If the startup is acquired when the Leapfunder Notes have not yet converted to shares they will be converted to shares automatically at the moment of acquisition.

Yes. You can buy and sell SPV Shares the same way you can trade regular shares. The Special Purpose Vehicle ("SPV") will help you with the paperwork. Usually the articles of association of the startup will limit the transfer of company shares in some way: they may require shares to be offered to other shareholders first, for example. Whatever limitations the startup has on share transfers apply exactly the same to SPV Shares. The SPV Shares function as an identical copy of the underlying company shares.

In principle the Leapfunder Notes can be bought and sold. The company does need to give permission for this. In some cases the accountant or attorney that handles the administration of Leapfunder Notes will invoice you some administration costs.

Online the start-up publishes their official company registration documents, along with their articles of association and often their first annual accounts. These documents form tangible evidence that the start-up really exists. In the Information Memorandum the start-up makes a number of binding promises regarding what they are going to use the money for, as well as making binding promises about the quality of the information they are providing. The start-up is required to send you regular updates, and they have to mention any major cash purchases in those. The Information Memorandum also contains agreed limitations on the salaries of management. These steps all provide substantial legal protection. But ultimately investing is a matter of trust between people: every investor has to make a judgement about the quality of the management for themselves.

No. All Leapfunder SPV vehicles make sure that the pooled investors are limited liability partners. That means they are not responsible for the SPV itself. Holding SPV Shares is limited liability, just as holding the startup shares themselves is limited liability.