Georgiev & Kolev advised Vitosha Venture Partners in the investment deal from TokWise.
TokWise is a software providing the ability for renewable energy players to become active participants in the market and provides support in accurate decisions being made. This advanced platform bridges the gap between physical assets and complex electricity markets, helping to centralise renewable portfolio management. TokWise pride themselves on their improved accuracy reducing forecasting error and their reliability. Founded in 2018 with the mission to accelerate the digital transition in the energy industry with their built in AI-powered SaaS to optimise market decisions and manage renewable portfolios.
TokWise allows power producers such as, Encavis to link their assets directly to the power exchanges which enables them to take control of the purchase and sale of electricity. In turn this reduces the risk in today’s volatile energy market.
Encavis investing in TokWise will open new opportunities with access to new markets and expanding their exposure in the EU.
The EUR 3 million equity investment in TokWise included Vitosha Venture partners being advised by Georgiev & Kolev.
Q&A with Vanina Popova, head of the Venture capital team of Georgiev & Kolev
Could you provide further details regarding your professional responsibilities and involvement in this project?
Before I answer your question, allow me to clarify that the team of Georgiev & Kolev has a solid background in the field of Venture Capital (VC) as well as in other legal fields. Over the years we have had the opportunity to gain significant experience as we provided legal services to two alternative investment funds for venture capital (AIFs) - Vitosha Venture Partners and Morningside Hill. Currently, the VC team of Georgiev & Kolev is responsible for the full legal service of both Alternative Investment Fund Managers (AIFMs) regarding all matters related to the investment activity of the Alternative Investment Funds (AIFs) managed by them. The total resource of both AIFS amounts to appr. EUR 70 million and consists of public financing provided by the Fund of Funds in Bulgaria and additional private funding provided by the fund managers and independent private investors. We first started working with these companies in 2021 when our team was hired by them to provide legal guidance and to assist them in the process of the establishment of their VC Funds which required the successful award of a public procurement and the approval of their applications by the Fund of Funds. After that, we consulted the companies on matters in connection with the incorporation of the Funds and Fund Managers, as well as the registration of the latter before the Financial Supervision Commission. During this long process we developed a close professional relationship which led our clients to trust us to continue to consult them on a broad spectrum of legal matters– from their internal structure to their investment activities.
The investment round led by Encavis AG is the second investment round in which Vitosha Venture Partners (the first one was led by Vitosha) has actively participated by acquiring shares in the company’s capital. The VC team of Georgiev & Kolev, led by me, provided legal assistance to Vitosha Venture Parnters (VVP) with respect to both investments. Each equity or quasi-equity investment requires the preparation of around 100 documents which need to be drafted, checked, signed, and negotiated, and the follow-up investment in TokWise Ltd. was no exception. Our Venture Capital team, which I am head of, was responsible for the preparation of all the documents required for the approval of the investment by the Fund of Funds, the preparation of an in-depth due diligence report, and the carrying out of the necessary check-ups which ensure that the enterprise is compliant with the eligibility requirements set forth in the European regulations and the Regimes for state aid.
My colleagues, Maria-Magdalena Stoilkova and Preslava Petrova, and I represented the Fund in the negotiations in connection with the Investment and Shareholders’ Agreement in which more than 15 parties participated. Our Venture Capital team was first introduced to TokWise Ltd. and its Founders in 2021 when we drafted the Investment Agreement for VVP’s first investment. Our professional relationship with them has developed over the years and we are happy to witness the success in the development of TokWise Ltd. and their product as more investors are taking interest in the company.
How were your teams’ skills and capabilities best suited to this project and how were they all utilised for this project?
G&K’s VC team consists of 6 qualified professionals with extensive experience not only in the area of venture capital, but also in corporate law, commercial law, M&A, and IP rights. VC Funds usually invest in companies at an early development stage (start-ups) which are considered the so-called ‘SMEs’ in accordance with the Small and Medium Enterprises Act so we specialize in that area as well. We also consult our clients on the legal aspects in connection with the management of the portfolio companies of the Funds - follow-up investments (such as the one in TokWise Ltd.), new investment rounds, capital restructuring, reorganisation, share swaps etc. I believe all this gives us an extra ability to look at the big picture and be helpful to our clients in more areas. Since we often have to offer complex and broad legal services, our law firm values teamwork above all else. Working closely together and utilizing everyone’s specific knowledge and area of expertise, allows us to provide the best possible solutions for the client’s needs.
Our Managing Partner Georgi Valentinov Georgiev and we at Georgiev & Kolev like to say that law is a sort of societal physics, charged with settling the ever more complex relations in today’s society – not a self-contained regulator interfering with business operations.
Sticking to this motto, for the last two years, our VC team closed over 125 equity and quasi-equity investments totalling more than EUR 50 million. Many of these investments gave us the opportunity to work and become familiar with a variety of companies with different corporate structures and legal forms, including foreign legal entities for which there is no analogue in Bulgaria; others introduced us to entirely new businesses, projects, products, and market expansions. All these factors brought together helped us develop our invaluable know-how and business-oriented approach that I think set us apart from other firms. The members of our team devote their full and undivided time and attention to the clients’ specific needs and business objectives.
The investment round in TokWise Ltd. gave me and my colleagues, Maria-Magdalena Stoilkova and Preslava Petrova, the opportunity to utilise precisely those skills due to the fact that the company had developed since VVP’s first investment and had therefore entered into more business and legal relationships. With TokWise that was definitely the case as the company had grown from a pre-seed stage company to a start-up with a complex capital structure and a broad range of business partners.
During this project, were there any obstacles or challenges you faced, and how did you overcome them to ensure a successful outcome?
When more and more investors and business angels are showing interest in a company in which a Fund is already a shareholder, our biggest responsibility as lawyers is ensuring that the respective client’s rights are protected. Our understanding of the modern legal profession is that our service should not be limited to a simple interpretation of the law – we strive to create the optimal legal structure for solving clients’ problems using our creativity and taking into consideration both their needs and the legal options available.
Since more than a few parties participated in the negotiation process, it was important for us to be flexible and to take note of the business side of things, but to never compromise our client’s best interest. Our team prides itself on its creativity and ability to employ an individual approach to each client and we believe that this is one of the reasons why we were entrusted by such clients as VVP. Since most VC Funds in Bulgaria operate with EU funds, their activity should be compliant with the Public Procurement Act, State Aid rules, Regulations on ESI Funding, and many others. Because of this they are subject to many restrictions and therefore need to comply with a lot more requirements than the private funds do. This is a great example of a specific need of our clients that we always take note of as lawyers when protecting their interest, especially when it comes to negotiations with private investors who do not wish to comply with so many requirements so we always explain what the mandatory standards for the VC Fund are and what the responsibilities of the Fund Manager require it to include in all investment and shareholders’ agreements.
In the course of the latest investment round in TokWise Ltd. we were responsible for making sure all parties were familiar with the applicable EU Regulation and the Operational Agreement for the establishment and management of the Fund made by and between Vitosha Venture Partners OOD and the Fund of Funds pursuant to the awarded public procurement. Thankfully, we were lucky enough to be working on the TokWise Ltd. deal with other skilled professionals – the DGKV team (Partner Omourtag Petkov and Senior Associate Ivan Punev) who possess deep knowledge of the VC industry in Bulgaria and in the European Union, and together we were able to secure the successful execution of the agreement on fair and favourable terms without experiencing major difficulties in the negotiation process.
Could you walk us through the due diligence process conducted by your law firm to assess the potential legal risks associated with the investment in TokWise Ltd.?
Each Fund needs to make an informed decision about the company in which it invests so the legal Due Diligence Report (DDR) is a key part of the services we provide. It is focused (at the very minimum) on the review of general corporate history and status of the company, important material contracts and agreements with banks and other creditors, agreements on acquisition/disposal of material assets, commercial agreements, share purchase agreements, convertible loans, and other contracts for the acquisition of share capital, employment issues, intellectual property, pledges, mortgages and other encumbrances of the company’s assets and litigation proceedings. When it comes to follow-up investments, such as the equity investment in TokWise Ltd., one could think that since the Fund is already a shareholder, it is informed about the company’s legal matters. However, many things may have changed over the years or months after the first investment, and it is crucial to do a ‘deep dive’ when preparing a Due Diligence Report regarding the newly occurred circumstances. This is necessary in order to ensure that the Investor is aware of the company’s state and legal affairs before providing more funds to it in the form of an equity or quasi-equity investment. Apart from pointing out potential legal risks, our reports also include recommendations on how some issues may be omitted or solved so that the company’s documents are legally sound before the Investor becomes involved. This approach benefits not only the VC Fund, but the Final Recipient, as well.
Given the complexities of renewable energy markets and technology, how did your firm ensure compliance with the regulatory landscapes as more companies at an early development stage with business ideas revolving around renewable energy are looking for venture capital financing?
Venture capital is a complex industry, and it is far from enough to understand only corporate law to be a successful lawyer in this industry. In order to represent the interests of your client - regardless of whether it is an institutional investor, business angel or even a founder, it is necessary to have in-depth legal knowledge and a broad view of business, to be interested in new trends, legislative changes and innovations.
It can be said that Georgiev & Kolev Law Offices had a vast experience in venture capital even before it gained popularity here in Bulgaria. Understanding the main clauses in the shareholders’ agreements is definitely not enough. In order for our team to deal with it successfully, with every single investment, they familiarize themselves with the company's business and the activities it performs in order to navigate the regulatory frameworks that regulate it. Every single document we draft - from the check-ups for compliance of the company with European requirements related to the public financing, through the conduction of a legal due diligence report, to the investment agreement, is tailored to the specific business of the company in question. Only in this way, can the interest of our clients be fully protected, because the documents must reflect the real situation.
As for Tokwise, the company is no exception. Renewable energy has been gaining more and more interest in recent decades. The European regulatory framework puts renewable energy on the map of the energy market, with the EU aiming for at least 42.5% of energy consumption to come from renewable energy by 2030. The pillar of the European Green Deal is namely the renewable energy, and this entire legal framework was taken into account when closing the investment in TokWise Ltd., which we believe will become one of the successful deals for our client Vitosha Venture Partners Fund I partnership.
