{"id":183043,"date":"2023-09-19T01:33:21","date_gmt":"2023-09-19T00:33:21","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=183043"},"modified":"2025-07-02T00:37:35","modified_gmt":"2025-07-01T23:37:35","slug":"structured-finance-startups","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/startups\/structured-finance-startups\/","title":{"rendered":"Structured Finance for Startups"},"content":{"rendered":"\n

Structured finance has traditionally been associated with large corporations seeking innovative ways to raise capital. However, in recent years, startups have increasingly explored structured finance as a viable financing option. This article explores the legal and commercial considerations that you should bear in mind when determining if structured finance is appropriate for your startup. We will also compare structured finance with securitisation<\/a>.<\/p>\n\n\n\n

What is Structured Finance?<\/h2>\n\n\n\n

Structured finance is a form of long-term financing that enables startups to further grow. By its nature, structured finance is a sophisticated financial technique that involves creating complex financial instruments that your startup issues to investors. It encompasses a range of financing methods. These include, collateralized debt obligations (CDOs), credit default swaps (CDS), and asset-backed securities (ABS). Unlike traditional loans, structured finance allows businesses, including startups, to access funding while customising the terms to suit their unique circumstances.<\/p>\n\n\n\n

Case Study <\/h3>\n\n\n\n

Your startup, ABC Ltd, develops and sells software solutions to the healthcare industry. Currently, ABC Ltd has entered into licences with more than 500 customers. The total value of these licences over their life of 10 years is \u00a320m. In other words, your customers will make steady payments to ABC Ltd over the next ten years. <\/p>\n\n\n\n

You want to raise \u00a315m in financing to develop a new product. <\/p>\n\n\n\n

Aside from licences, your business does not have many other valuable assets. This means lenders will not loan you the \u00a315m because ABC Ltd does not have many fixed assets. Nor do you wish to raise equity financing because that would dilute your shareholding. <\/p>\n\n\n\n

With the help of a financial adviser, you can package up the future cash flows<\/a> into a special purpose vehicle (SPV). You will then direct all future payments under the licences to these SPV. On this basis, ABC Ltd can issue securities in the SPV to investors, who will in turn pay ABC Ltd money up front. <\/p>\n\n\n\n

In other words, this structured financing essentially allows ABC Ltd to unlock the value of the future cash flows by promising to direct future payments to the investors. <\/p>\n\n\n\n

Structured Finance vs Securitisation<\/h2>\n\n\n\n

You may hear structured finance and securitisation used interchangeably. Generally speaking, securitisation is one form of structured financing. The above case study is an example of a securitisation. <\/p>\n\n\n\n

However, there are some distinctions:<\/p>\n\n\n\n

Nature of Securities Issued to Investors <\/h3>\n\n\n\n

Structured finance exists to meet the needs of issuers (e.g. ABC Ltd) as well as the investors. As a result, the securities can be tailored accordingly. Under a securitisation, the securities (notes) essentially act as an IOU where investors are entitled to the future cash arising under the licences (or trade receivables generally). Other kinds of structured finance securities may include derivatives, convertible notes, and complex debt structures. This is to attract investors.\u00a0<\/p>\n\n\n\n

Collateralisation <\/h3>\n\n\n\n

In structured finance, collateral refers to the underlying assets that generate future returns for investors. Under securitisation, these are the income producing assets (e.g. licences). Structured finance more generally can use other assets like debt obligations, fixed assets, and other income streams as collateral. <\/p>\n\n\n\n

Investor Profiles <\/h3>\n\n\n\n

Structured finance may appeal to a broader range of investors, including institutional investors and private equity firms. This is because it describes more diverse investment opportunities. As a form of structured finance, securitisation attracts investors interested in predictable and stable cash flows generated from specific assets. If your startup has a sophisticated and customised financial structure, you might prefer structured finance to attract investors looking for tailored investment options.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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