NBLO advises UK health technology company on USD 1m US venture capital SAFE investment under English law

NBLO advised a health technology business incorporated in England and Wales on a bridge investment of approximately USD 1 million by a United States venture capital fund ahead of the company’s next priced round, made by way of a Simple Agreement for Future Equity (SAFE) and an accompanying side letter.

The investor is a US venture capital fund specialising in dual-use technology across defence, artificial intelligence and cyber. NBLO assisted throughout the transaction, including negotiation of the term sheet, the SAFE, the side letter, the alignment of the new investor’s rights with the company’s existing investor arrangements and the obtaining of the consents required to give effect to them.

A SAFE is a United States convertible instrument and the standard forms are drafted for a Delaware corporation. It can be used to invest in a company incorporated in England and Wales, but not without adaptation. 

In this transaction, the instrument was a post-money SAFE governed by the laws of England and Wales and adapted for a company subject to the Companies Act 2006, including as to the class of shares into which it converts, the authority to allot those shares and the disapplication of pre-emption rights, and how the valuation cap operates against a capitalisation table that already includes convertible instruments. 

The side letter conferred the governance, information and consent rights customary for an investor of this kind, each expressed to take effect notwithstanding the company’s existing constitutional and investment documents. 

The new rights had to be capable of operating consistently with the articles of association and with commitments already given to earlier investors, rather than cutting across them. This was achieved through a written consent from the company’s existing investor under its investment documents and the articles, together with an undertaking in the side letter that the parties would implement the new rights consistently with the company’s governing documents. 

The documents also carried a US tax and securities overlay of a kind unfamiliar to many UK founders, including representations and ongoing covenants on the company’s status as a passive foreign investment company or controlled foreign corporation under the US Internal Revenue Code, an agreed US tax characterisation of the SAFE and US securities law representations.

The matter is representative of a pattern NBLO sees regularly. US capital is deployed into UK and European companies on US standard-form paper and the documents have to be made to work under English law and alongside a capitalisation table that already carries commitments to earlier investors. Resolving that at the SAFE stage is what avoids difficulty during a priced round.

Kamen Shoylev (Managing Partner) and Dragos Iordache (Associate) advised the company.