How to become an alternative investor I

Part I: Before investing

At Fellow Funders, we aim to help democratize alternative investing, providing our community with the knowledge that we believe is necessary to invest as experienced investors do. We must emphasize that, in our opinion, investing is a process that must be carried out rationally. For this purpose, this week will mark the beginning of a trilogy of articles with which we want to discuss the fundamental principles to be taken into account in the investment process.

This first article focuses on the necessary analysis before making the investment. Regarding this analysis, we would like to share with you two documents that, from our point of view, are very useful: the Shareholders’ Agreement and the Objective Valuation Report.

The Shareholders’ Agreement is a contract (in addition to the company’s Articles of Association) signed between the company’s participants/shareholders establishing a series of rules governing their future relations, rights, and obligations.

This agreement covers three main groups of rules or commitments. Firstly, the transfer of shares or participations. Secondly, the functioning of the administrative bodies and, finally, a diversified group of other possible agreements (remuneration policy, etc.). The most common and most frequently used clauses are the following:

  • Drag along. This clause allows a shareholder (generally a majority shareholder) to force other shareholders to sell their shares in response to a purchase offer for a higher percentage of shares than the percentage of shares owned by that shareholder.
  • Tag along. Similar to the previous clause. However, this clause recognizes the right (but not the obligation) of the minority shareholders to sell their shares under the same conditions as those the majority shareholder sells them.
  • Dividend distribution. Establishes the percentage of the annual profit that the company distributes among the partners.

Besides giving visibility to the Partners Pact by publishing it on our platform, Fellow Funders takes care of negotiating the clauses that favor the company’s growth with the management team while safeguarding the rights and possible benefits of minority investors.

The other document we mentioned above, which we consider very useful when investing in our platform, is the Informe de Valoración Objetiva (IVO) (Objective Valuation Report). This document, prepared in-house, contains interesting information for investors, including:

  • Fellow Funders Scoring. A numerical value between 0 and 100 from our rigorous and exhaustive analysis, whose methodology covers several points: founding team, product/service, legality, market, regulatory barriers, and strategies, among others. This scoring allows us to determine whether the risks are excessive or acceptable (the higher the scoring, the lower the risks). 65 is the minimum “score” for a project to be published on our platform. In other words, a lower score implies, in our opinion, that the risks and/or uncertainties are too high for most of our investors. We should highlight that obtaining a score higher than our cut-off point does not exempt projects from risks (an implicit element in alternative investment). However, it is possible to limit these risks after a thorough analysis.
  • Valuation. How much is the company worth? Why is it worth that much? What percentage of the company will the entrepreneurs give up? Is the amount of the investment round sufficient? What will be the possible exit (how we recover our investment by making a profit)? These elements are determined through our pre-money valuation model (pre-capital increase). Our method consists of incorporating quantitative and qualitative parameters and obtaining valuation ranges for the company through mathematical and statistical procedures.
  • Other information. The IVO is a detailed document that provides various insights about the company. This document contains the main KPIs (Key Performance Indicators), a description of the company’s business model and its monetization, information on the market, the management team, the cap table (distribution of equity), the amount and destination of the funds, the main milestones and the roadmap (steps to follow), metrics, financial projections, and other relevant data.

The Shareholders’ Agreement, the IVO, and other complementary documents are available on our platform. Once this information has been read and analyzed, the potential investor will be one step closer to developing a reasoned and reasonable investment process similar to that of professional investors.

Want to become an alternative investor?

Fellow Funders is the perfect place to start your investment process. Our company offers all the facilities to become an alternative investor and the help of experts that will clarify your doubts during the whole process.

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