In advance of the 12th St. Petersburg International Legal Forum (SPILF), Senior Associate Vladislav Lazutkin and Partners Evgeny Zelensky and Konstantin Olefir spoke to Kommersant newspaper about market trends and its impact on the terms of investment transactions.

Vladislav Lazutkin noted that the investment terms may vary quite dramatically from one transaction to another due to the limited numbers of active professional investors and viable target projects. The terms also depend on predictability of exits from the investment (a potential sale to a strategic purchaser or an IPO). Pre-IPO offerings of shares in private companies are on the rise. Investment funds are forced to compete with such alternative source of financing, and it benefits the founders. However, participation of many retail investors in such offerings may require additional protection of their interests.

“The key interest rate affects the market significantly. On the one hand, debt financing is too expensive for some companies, so they have to seek out alternatives, including equity financing from venture capital or private equity funds. On the other hand, potential investors may use more conservative instruments to gain reasonable rate of return (i.e. bank deposits), and it restricts the flow of capital into the high-risk venture investment market,” explains Evgeny Zelensky.

“The enforceability of some of the traditional rights of investment funds or founders/majority shareholders may be affected by a pre-IPO offering, given that thereafter a closely held company will have to deal with hundreds or even thousands of new minority shareholders,” notes Konstantin Olefir.

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