April 14, 2020

What happens when investors in a portfolio company clash over rescue funding?

Funds may find themselves in situations where the interests and views of the investors in a portfolio company may deviate. Certain of the investors may seek to provide additional financing while others do not see a need or have a different view as to the valuation applied to such financing round. Also, investors' ability to provide further means may vary widely. In such situations, a faction of the investors may want to exert pressure on the reluctant or restrained investors.

Irrespective of which side a GP finds itself on, it should seek legal advice in such a situation. Reluctant or restrained investors may not be able to block other investors from providing rescue funding. Such may include severe cuts to the backtracking investor's financial position with respect to the portfolio company. However, the devil is in the details and there is great legal uncertainty around the handling of such situations.