1. DEFINITION

A Fundraising Incubator is a company financing corporate transactions such as a merger, an acquisition, a securities private placement or an initial public offering (IPO) against an equity participation and a put option on this equityparticipation to the issuer itself. The put option, issued by the same issuer as the equity participation, ensures the investor that, in case of success ofthe transaction, it can resell this participation to the issuerimmediately after. Today, transaction financing is the exclusive privilege of all investment banks who make huge profits therefrom.

2. Objection

One could wonder why not a simple loan? The main reason is that under most jurisdictions, loans are limited to a certain interest rate percentage, called the usuryrate, generally less or far less than 25%. In Switzerland, the federal law limits this usury rate at 15% and makes any interest rate set above that limit unlawful and thus, not payable!

Los inversionistas generalmente desean un mayor rendimiento de su inversión, ya que cualquier inversión de financiamiento de transacciones representa un grado significativo de riesgo, al menos desde el punto de vista de la percepción del mercado.

3. Risk of a Transaction Financing Investment

El riesgo asociado a una inversión de financiación de transacciones está directamente relacionado con la probabilidad de éxito de la transacción.

Therefore, as a rule of thumb, we can say that the transaction financing investment risk is directly linked to thequality of the agreements binding the parties to the transaction and to these parties’ willingness to execute the transaction properly.

4. Rules of Prudence

Las reglas básicas de prudencia en una operación de financiación de inversiones son las siguientes:

• Having a commitment from both parties to the transaction provides the safest conditions to the investment. However, this is rare and mostly impossible. Commonly, a transaction financing agreement is entered into between one party to the transaction and the representative of the investors.
• Reducir al mínimo el tiempo de la inversión. Esta regla bastante simple tiene muchas implicaciones, desde la logística hasta las condiciones legales. El representante de los inversionistas, que debe ser un financista o un empresario pero no un abogado, debe reunir los fondos en una cuenta bajo su control y verificar el consentimiento y la voluntad de proceder de las partes.
• Have all the transaction (key) terms agreed upon before the financing takes place. The investor or his representative must ascertain that the parties are in full agreement on all (key) terms of the transaction. While the parties might not be able to bear the cost of all agreements drafting before the transaction financing takes place, they can surely produce a complete term sheet for each agreement needed for the transaction. Any party receiving the transaction financing can also take the commitment toward the investor that no other additional or new (key) term shall be required from the other party after the financing takes place, preventing thereby the classic last minute requirement that makes the transaction fail.