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Rechtsanwalt Marian Härtel - ITMediaLaw

Investments in Esport Teams

9. December 2019
in Law and Esport
Reading Time: 3 mins read
0 0
A A
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money 2696228 1280
Key Facts
  • Current challenges for esports teams in raising capital for professionalization.
  • The distinction between financial investors and strategic investors is crucial for contract design.
  • Essential contractual issues relate to voting rights, participation and type of investment.
  • Beware of over-indebtedness: Young founders should check contracts carefully to avoid liability risks.
  • Different problems with limited liability companies compared to stock corporations when raising capital.
  • Creating relevant documents, such as term sheets and participation agreements, is essential for teams.
  • Non-binding advice on costs and procedures is available, but limited to basic questions.

Currently, I advise a number of esport teams to raise capital and take the next step towards professionalization. So today I have a few brief comments on the problems I am dealing with.

Content Hide
1. Investment quo vadis?
2. Joint stock company or “silent participation”
3. Important documents
4. to ask?
4.1. Author: Marian Härtel

Investment quo vadis?

If you want to re-establish a successful and profit-oriented esports team today, apart from factory teams, only external capital remains. Bootstrapping Esport teams is actually impossible by now(see this post for more on that).

By the way, some important basic information on how to acquire an investor for an esports team can be found in this article.

However, it is also important to consider whether you are looking for a financial investor or a strategic investor. This is not only relevant for the future, but also has an impact, of course, on how extensive and complicated contracts should be designed.

Important points to be clarified in these contracts are the investor’s voting rights, participation in the management, other activities, but above all the manner of the investment. In the case of young companies, it is important to take into account, in particular in terms of balance sheet law, that loans, agios or other arrangements must be made in such a way that the “cash” in the current account does not immediately result in over-indebtedness. Of course, there are many design options here, but they have different prerequisites and advantages and disadvantages. Without careful planning and advice, a young founder, who has mostly not studied law, should not simply accept contracts. Even as managing directors, the issue of over-indebtedness can quickly hide large personal liability risks, of which rarely anyone has any idea, since in my experience it is the rule that hardly anyone understands why over-indebtedness can exist, even though six-digit sums of money are in the current account.

Joint stock company or “silent participation”

By the way, these problems mostly arise with a limited liability company, because with a joint stock company(see this article) the raising of capital works similarly, but it can be easily constructed overall.

Incidentally, this also applies to an equity loan, which can be constructed, for example, in the form of a typical or atypical silent participation. This is a loan which grants the lender a profit-based contribution to the success in return. This proportion is predetermined and usually takes the form of a semi-annual or annual interest payment. However, the investor does not become the owner of the Esport team, but the company (usually probably a limited liability company) involves the investor in profits and exit proceeds as if he were the owner. Due to this construction, participatory loans can be designed quite flexibly. Whether such a loan is preferable to a shareholding in equity cannot be answered on a flat-rate basis, but depends on different circumstances.

This is mainly due to the fact that, unlike equity investments, a silent participation usually does not have a say, but there is a priority right to purchase profits and an improved situation in the event of an exit. So it’s up to you to decide whether you want or find a strategic investor.

Important documents

In addition to general advice, also on strategic issues, I help teams to prepare the relevant documents such as a term sheet, a shareholding and shareholder agreement as well as the adaptation or redesign of the social contract. Future investments would also have to be taken into account and, if necessary, managing director contracts would have to be adapted. This is especially true for the first smaller investors such as Business Angel, who can quickly cause problems in future investment rounds in the case of incorrectly concluded contracts, for example without the possibility of “dilution” and other arrangements, or have to be paid out dearly.

to ask?

I would also be happy to help with these questions with basic questions about costs and procedures without obligation. However, since an investment investment may also require extensive pre-contractual advice, this is limited to rudimentary questions in this case.

 

Marian Härtel
Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.

Tags: BeratungBusinessCustomizationEquityEsportHaftungInformationInterestInvestmentInvestorTestVerträge

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Marian Härtel - Rechtsanwalt für IT-Recht, Medienrecht und Startups, mit einem Fokus auf innovative Geschäftsmodelle, Games, KI und Finanzierungsberatung.

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  • Informationen
    • Ideal partner
    • About lawyer Marian Härtel
    • Quick and flexible access
    • Principles as a lawyer
    • Why a lawyer and business consultant?
    • Focus areas of attorney Marian Härtel
      • Focus on start-ups
      • Investment advice
      • Corporate law
      • Cryptocurrencies, Blockchain and Games
      • AI and SaaS
      • Streamers and influencers
      • Games and esports law
      • IT/IP Law
      • Law firm for GMBH,UG, GbR
      • Law firm for IT/IP and media law
    • The everyday life of an IT lawyer
    • How can I help clients?
    • Testimonials
    • Team: Saskia Härtel – WHO AM I?
    • Agile and lean law firm
    • Price overview
    • Various information
      • Terms
      • Privacy policy
      • Imprint
  • Services
    • Support and advice of agencies
    • Contract review and preparation
    • Games law consulting
    • Consulting for influencers and streamers
    • Advice in e-commerce
    • DLT and Blockchain consulting
    • Legal advice in corporate law: from incorporation to structuring
    • Legal compliance and expert opinions
    • Outsourcing – for companies or law firms
    • Booking as speaker
  • News
    • Gloss / Opinion
    • Law on the Internet
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    • Law and Esport
    • Blockchain and web law
    • Data protection Law
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    • Labour law
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