UK Law and Practice Contributed by: Federico Fruhbeck, Alice Brogi, Alex Bluett and Gisele Zouein, Gibson, Dunn & Crutcher LLP
2. Establishing and Exiting Early- Stage Companies in the Energy and Infrastructure Industry 2.1 Establishing and Financing a New Company Establishing a New Company New UK start-up companies in the sector are typically incorporated domestically. One of the advantages of doing so is that entrepreneurs can benefit from the jurisdiction’s favourable legal framework, particularly for renewable energy initiatives, such as the contracts for difference scheme and Innovate UK grants and funding. In certain instances, there may be specific reasons to choose another jurisdiction, such as tax, regulatory or operational advantages. The process for incorporating a new company in the UK can take as little as a few hours, and there is no minimum capital requirement for incorporation (except in the case of a public limited company). Founders should also consider sector-specific licences and planning consents at an early stage. Types of Entities Entrepreneurs in the UK energy and infrastructure sector are typically advised to choose a private limited company (Ltd) as the initial entity for their enterprise, as it offers limited liability to shareholders, flexibility in terms of governance and financing, and potential tax efficiency. Depending on the nature and scale of the business, other types of entities may be preferable, such as a public limited company (PLC), which may be suitable if there are plans for a future public offering, or a limit- ed liability partnership (LLP), which can be considered for joint ventures or investment-focused structures. Early-Stage Financing Early-stage financing (seed investment) for start-ups is typically provided by a mix of sources, including: • local investors, such as angel investors, family offices and high net worth individuals; • government-sponsored funds, such as the Brit- ish Business Bank, the UK Innovation and Sci-
ence Seed Fund, and the Enterprise Investment Scheme; and • foreign investors, such as venture capital (VC) firms, and corporate venture arms and strategic partners. Early-stage financing is usually documented through a term sheet, which sets out the key terms and condi- tions of the investment, such as the valuation, amount, structure, rights and obligations of the parties. The term sheet is typically followed by more detailed and formal documents, such as a subscription agreement, a shareholders’ agreement and articles of association. VC is a significant source of financing for start-ups in the UK energy and infrastructure sector, with a range of domestic and foreign investors including: • home-country VC firms, such as Octopus Ventures, Draper Esprit and Scottish Equity Partners, which may focus on specific stages, sectors or regions of the market; • government-sponsored funds, such as the Future Fund, British Patient Capital and the Industrial Strategy Challenge Fund, which co-invest with private investors to support the growth and devel- opment of the sector, and to address market gaps and challenges; and • foreign VC firms, such as Sequoia, Accel and SoftBank, which have increased their activity and presence in the UK market, and which may offer larger amounts of capital, global reach and strate- gic partnerships. Prevalence in the UK Early-stage ventures in energy and infrastructure are common in the UK, with activity supported by an active investor ecosystem, government programmes and a deep pool of technical talent. However, capi- tal intensity and regulatory complexity require many ventures to progress via partnerships or consortiums, as well as staged financing aligned to development milestones. 2.2 Liquidity Events While the most appropriate approach will depend on the specific circumstances of the company and the timing of the process, a sale process is gener-
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