How you hold Equity on GetEquity: Introduction to SPVs and Syndicate

Don’t get confused just yet by the topic headline.

You might have wondered, how exactly do I own equity in these startups? What does the GetEquity Platform represent? Do I hold these equities directly? If not, then what does it mean exactly to buy equity in these companies?

For investors who are just getting started in Startup investing, we are here to help. Words like equity, syndicates, SPVs, valuation, fair market value, traction, trigger events, etc might seem all strange to you now but stick with us and we would make you investors in your own right.

Today, we are going to break down some complex information for you as simple as possible, as short as we possibly can.

Are you with me so far?….. Yes? Great….. Let's begin from the top, shall we?

What is Equity?

Official definition: In finance and accounting, equity is the value attributable to the owners of a business, the book value of equity is calculated as the difference between a companies assets and liabilities in a financial record called the balance sheet, it also refers to the current share price or current value that is determined by investors or valuation professionals, there are two types of equity value today :

• Book Value: In accounting, the book value is determined by preparing financial statements of which balance sheet is one of such documents, on the balance sheet the equation to get equity is simply put in the below formula.

Equity = assets — liabilities

Note: Assets are an item of property owned by a company, regarded as having value and available to meet debts, commitments, or legacies. Liabilities are something a company owes, usually a sum of money, recorded on the right side of the balance sheet. It includes loans, lines of credit, accounts payable, short term debt, capital leases, mortgages, deferred revenues, bonds, warranties and accrued expenses.

In reality, the value of equity is calculated in a detailed way and is a function of the following :

a) Share capital (the part of the capital of a company that comes from the issue of shares)

b) Contributed surplus ( more on that later)

c)Retained earnings (Retained earnings (RE) is the amount of net income left over for the business after it has paid out dividends to its shareholders )

d) Net income ( Net income, also called net earnings, is sales minus cost of goods sold, general expenses, taxes, and interest)

• Market Value: In finance, equity is expressed as a market value which may be higher or lower than the book value, the reason being that accounting statements are backward looking( results come from past statements) while financial analysts look forward looking at market size potentials and forecast what they believe the financial performance will be. For public companies, it's easy to calculate the market value of equity which is the latest share price multiplied by total number of shares outstanding.
• For private companies, it's much harder to determine the market value. So how are private companies actually valued?. The most common methods used to estimate equity value are:

a) Discounted cash flow analysis or DCF for short

b) Comparable Market and company analysis

c) Precedent Transactions

Wow, hope that wasn’t too much to digest? Well, check our definition below

Our Definition: In a nutshell, Equity refers to the shares in a company’s ownership. It is the total amount of money that a shareholder(possibly you or me) is eligible to receive if all of a company’s debts are paid off and its assets liquidated. Basically, Equity represents the shareholders’ stake in the company.

Meet Goro, a telemedicine startup building a faster way to connect users to doctors online seamlessly, they are looking to raise investment from investors after proving that their business model, technology, and revenue model works by showing traction, MVP, revenue, acquired users, or partnerships signed, etc and are looking to scale up operations significantly, how would they raise money?

The founders Sheun and Seyi who are former medical doctors with expansive knowledge and service records spanning 12 years both involved and running a UK based telemetry company decide they do not want to go to the bank to raise capital as debt but rather approach investors to sell some shares(ownership) in the company, as an investor, you can buy some of these shares and give Goro your money(which It needs to grow by hiring and fuelling its customer acquisition process ).

By purchasing these shares and becoming a shareholder, you own equities(a certain percentage) in the company. If Goro is liquidated and assets are paid off, you will be eligible to receive your percentage of what is left. Your equity investment can rise as the value of the company rises.

At which point, you can decide to sell your shares at a new higher value to other investors or still hold on for long as Goro keeps growing.

Still with me so far? Okay, great let's move on.

What is Tokenized Equity?

In the simplest of forms, the digital representation of the agreed legal allocation by a company to our syndicate, we make use of blockchain technology to turn these assets into smaller bits aka tokens that retail investors like you and me can buy without hurting the capitalization table of these companies as they grow in their own right and meet new milestones.

What is a Syndicate?

Official definition: A syndicate is a self-forming group of individuals or companies in this case investors who use a legal investment vehicle that allows investors to co-invest together with other investors in startups in the market looking to raise simply put a group of investors.

Our Definition: A syndicate is a group of awesome people that come together to invest in startups as one body thereby allowing them to invest larger amounts in companies who might require large capital amounts that a single person cannot afford.

As an individual, you can join a syndicate either for a yearly fee or for free (like on GetEquity) in the hopes of investing alongside other individuals who share a similar vision to support early stage companies and invest alongside more mature and experienced investors.

Not confused yet I hope?

In this case, GetEquity acts as a syndicate that allows users like you and me to invest together in these highly-vetted startups , we have done due diligence on each company and have made available to the private community the opportunity. We hold the equity on your behalf.

To also ensure that investors using the platform are credible, we have implemented a strict 4-step KYC process before you can invest on the platform to verify every user, we do this to protect you, other investors, and GetEquity.

To ensure the companies we present to you are well-vetted, we make use of a Six-man cell structure that is a nucleus of our large investment committee made up of founders, investment bankers, private equity, accelerator managers, venture capitalist, financial analysts, lawyers, consultants who run due diligence checks and thorough review of each business and negotiate the terms on behalf of investors notwithstanding, the valuation, amount to be raised, understanding the business model, market research, looking at their data rooms, confirming their deck, analyzing market opportunity and environment, confirming the data in the industry present, looking at the track record of the founders.

What is a special purpose vehicle(SPV)?

Official Definition: A special purpose vehicle, is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt. Legally speaking an SPV helps companies to de-risk.

Our Definition: Remember Goro? of course you do… Normally to invest in a company, you need to have high net worth and strong risk appetite( meaning you are willing, be able and afford to lose millions of dollars investing a company who can die, because make no mistake…many startups die!!) ****but using a syndicate or via an SPV you can easily invest in Goro through GetEquity which has created a legal subsidiary(GetEquity 001 for example) that is a part of GetEquity but can also stand alone.

This means that if something happens to GetEquity, GetEquity 001 can still hold its own legally and financially if it so chooses.

So what does this all mean for you and for GetEquity?

As you know startup investments are very risky. Amongst other de-risking factors, we have de-risked by allowing the tokenized equity to be in an SPV we created, the legal entity whose sole job is to hold custody of the equity on behalf of investors and invest in the companies.

TL:DR — GetEquity is a private syndicate that brings investors from all around the world through a digital marketplace allowing them to invest in high-growth, highly vetted startups in the market. As a user, you hold equity in these startups as part of the GetEquity Syndicate. As a syndicate under an SPV, GetEquity undertakes careful diligence on your behalf and itself to reduce the risks as much as possible.

Before you go, do you know we currently have 6 awesome companies listed on the platform awaiting your investment that you can take advantage of now?

Download our app on Google Play or Apple stores to get started.

Got any questions for us? Send us a message on any of our social media channels or a mail at support[at]getequity[dot]io and we will ensure we solve your issue.

Until another time,

Tolu.