How does the Icehouse Ventures Nominee work and what's the process for transferring my shares?
Overview:
Icehouse Ventures is a venture capital firm based in Auckland, New Zealand. We invest into technology startups and are led by the mission of backing New Zealand's bravest founders.
As part of our legal framework, we manage a nominee which can aggregate individual investors via a single entity - Icehouse Ventures Nominees Limited. This entity holds the legal title to shares (or other instruments, like convertible notes or partnership units) issued by the investee business for your beneficial interest as the investor. This is akin to bare trust, nominee or custodial services you might be familiar with from other investments.
This is beneficial for the investee business (and thus, all shareholders!) as it keeps the cap table tidy, which can be crucial for future capital raises or exit transactions, and simplifies administration. There may also be specific benefits to the investor, read below.
What are the benefits of the nominee structure for investors?
- Centralised Reporting: IV is responsible for ensuring investors receive all appropriate shareholder communications in relation to each investee company and provides consolidated statements of all holdings, making tax or other reporting simpler. In addition, IV's investor portal provides a central repository for all reports/ communications easily accessible at any time.
- Enhanced Shareholder Rights: As a bare nominee each investor generally maintains the same rights that they would as an individual/ direct shareholder, however, aggregation via the nominee can augment this with additional rights:
- Information Rights: It is not uncommon for certain information to be restricted to those who own more than a defined % of the company. In these cases, aggregating our holdings increases our collective likelihood of maintaining the applicable threshold.
- Pre-emptive Rights: It is not uncommon for the right to participate in subsequent investment rounds to be restricted to those who own more than a more than a defined % of the company. In these cases, aggregating our holding increases our collective likelihood of maintaining the applicable threshold.
- Oversubscription Opportunities: Where there are pre-emptive rights to participate in subsequent investment rounds, that right is typically in proportion to existing shareholdings. Assuming other co-investors in the nominee do not take up their share, aggregating our holding may enable investors to access larger allocations than they may be able to do as an individual direct shareholder.
- Board Representation: It is not uncommon for board appointment rights or board observer rights to be restricted to large, strategic or “lead” investors. In these cases, aggregating our holding increases our likelihood of negotiating these rights or being recognised as a large, strategic or “lead” investor.
- Privacy: The nominee reduces the level of information publicly available, such as via Companies Office filings, enabling less public visibility of investors' positions.
- Operational Efficiency: By appointing IV to act as power of attorney, we can execute documents or time-sensitive decisions where investors (or directors and trustees) may not be able to respond in a timely manner, or not have access to the internet or facilities to print, sign or scan documents.
- Cap Table Hygiene: By aggregating investors via the nominee, investee companies can reduce the number of legal shareholders. This commonly reduces administrative overhead for the investee company, increases its attractiveness to later-stage investors and helps to avoid it becoming subject to the Takeovers Code.
Are there any fees involved?
Our typical fees for making investments via Icehouse Ventures are a 2% placement fee at the time of investment (i.e. if you invest $10k, then the fee would be $200) and a 5% 'carried interest' on realised profits that exceed the original cost of your investment (i.e. if that investment then returned $25k, then we would charge 5% of the $15k profit, which would be $750).
Legacy investors who have invested directly with the company and then subsequently transfer shareholdings into Icehouse Ventures typically will not be charged the standard management fees or carried interest by Icehouse Ventures. We will confirm what fees (if any) apply at the time of transfer. This not only applies to the initial share transfer but also extends to any new rounds raised by the same company.
Please note, however, this fee-exemption does not apply to other investments in different companies via Icehouse Ventures.
How does voting work through the nominee? What if shareholders disagree?
Each investor can direct the nominee in respect of their shareholding in any shareholder vote, however, there are a few provisions for simplicity:
- Resolutions and votes like accepting annual accounts or the minutes of the AGM which are not divisive nor have material impact are generally approved without consultation of the shareholders for efficiency.
- In any resolution or vote requiring unanimous voting from the nominee, we will vote in accordance with the instruction of the majority of investors. This can apply in situations where a minority within the nominee disagree with the remaining investors in the nominee.
- Where we do not receive instruction from investors, we will vote using management discretion (if no replies are received) or based on majority instruction (if some, but not all, investors reply). Where management discretion applies, we will typically support the recommendation of the board, investor director or lead investor.
What happens in follow-on rounds? Are my pre-emptive rights different?
You retain all the same pre-emptive rights through the nominee as if you were a direct shareholder and in follow-on rounds we will communicate the round to you and seek your commitments to participate.
What are the compliance requirements for investors to be brought into Icehouse Ventures Nominees Limited?
Any investor on the Icehouse Ventures platform must go through IV's onboarding related to AML and FMCA compliance. This includes:
- 'New Investor' Application Form: to collect key information on the investing entity.
- AML Verification: to verify the investing entity, a process which is done securely via an online AML platform and facilitated by IV's in-house compliance specialist.
- Wholesale Investor Declaration/ Eligibility Certificate: to verify the investor's wholesale/eligibility status under FMCA regulation.
- Power of Attorney Deed: to appoint the nominee to act as power of attorney i.e., lets IV hold the assets on the investor's behalf via the nominee.
- Share Transfer Form: each investor will be given a unique Share Transfer Form to formalise the transfer of their shares into the nominee.
While this may seem like a long list, the process is almost entirely digital and we have processes in place to make it as easy and seamless as possible.
If you have any questions on the above, please feel free to reach out to the Operations Team.