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 KB in Sweden. In the Netherlands the SPV Shares are in the form of “Certificaten” issued by the StAK. In Germany and in Sweden investors get a % interest as a limited partner in the KG or KB 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 K/S 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 as usual on any shareholding.

Only in Sweden Leapfunder uses a Kommanditbolag ("KB") as the Special Purpose Vehicle ("SPV"). The KB is the most trusted structure for pooling shareholders in Sweden. A KB 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 KB that corresponds to company shares in a 1:1 proportion. The limited partners are the owners of the KB and can vote within the KB on a number of issues. Being a limited partner in a KB is actually just like being a shareholder in a normal company: you have limited liability. The KB 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 KB is tax transparent: the KB itself pays no tax on any profits on the shares. Of course the investor has to pay tax as 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, voting in the shareholders' meeting 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 Priced 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.

Large investors are often allowed to invest in shares without going into an SPV. They simply get their shares directly. This system is only used for very large amounts: the default value is > EUR 100,000. The threshhold will be specified in the Information Memorandum.

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.

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