raising equity finance-1

8/9/2019 Raising Equity Finance-1

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Raising Equity Finance

Howard MossCorporate Finance Director

Kingswood Corporate Finance


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Key Questions to Ask Yourself

Is my business ready for investment?

Is Equity Funding what I need?

How do I find equity investors?

How can I get them to invest?


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What is the most important thing What is the most important thing

in raising finance?in raising finance?Property Location Location Location

Funding Credibility Credibility Credibility


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In Short

T he right team,with the right idea,

properly presented,will get backing.

Jonathan Massing,Managing Partner,Kingswood


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C redibility of What?C redibility of What?

Y our idea

Y our Plan

Y

ou


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H ow will you know whether you areH ow will you know whether you are

credible?credible?B e objective what would you look for if it was

your money

Ask professional advisers (P.S. Dont forget to listen!)


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Y our Idea Y our Idea

Does it work? Have you proved the concept or sold any!

Who else does it? Who are your competitors

Why are you better? USP/IP


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Is your strategy too risky?

CustomersNew Medium risk Higher Risk

ExistingLower Risk Medium Risk

Existing NewProducts


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Y our Plan Y our Plan

ProductionDistributionMarketing/SalesResources

FinanceExit


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Y ou Y ou

Ex perience Do you know what you are doing?

Skill Set Do you know when you need help?

Financial riskHow much will you be investing?


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Is Equity Funding What you

really need?Insufficient knowledge of funding sourcesInability to access other sources Insufficient presentation skills Insufficient professional advice to provide

credibility

Potential to give too much equity away toosoon


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When to seek Equity Funding

You need to balance several factors

Product/Service sufficiently testedDemonstrable interest from marketSufficiency of managementDocumented plan with validation of costs

and timescalesDont burn all of your own moneyGood plan - take professional advice


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Sources of Equity Funds

PrivateHigh net worth individualsSophisticated investors

CorporateProfessional investorsCorporate venturing

Venture CapitalRegional Development Funds


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Seed

Sub 1m

Start-up

Prob pre profit

Up to 5m

Expansion

Roll out. First

profits Less than 10m

Maturity

Poss Exit IPO/

Trade saleUp to 50m

Stagnate

Rationalise

MBO/MBI Poss 100m+

Rejuvenate

2nd exit

opportunity

Angels Traditional VC Traditional Private Equity

Funding types vs Stage of GrowthMarket

Value

T ime


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C ommunication of Plan

Financial Services and Markets Act 2000(Financial Promotion and Promotion of

Collective Investments) (Miscellaneous Amendments) Order 2005

Wealth Warning Required!


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Wealth WarningIMPORTANT NOTICE

This document is published by ABC Limited. It has not been approved by an authorisedperson within the meaning of the Financial Services and Markets Act 2000. Reliance on thispromotion for the purpose of engaging in any investment activity may expose an individual toa serious risk of losing all of the property or other assets invested. Investment in newbusiness carries high risks as well as the possibility of high rewards. It is highly speculativeand potential investors should be aware that no established market exists for the trading of shares in private companies. Before investing in a project about which information is given

readers are strongly advised to verify all material facts and information for themselves and totake advice from a person authorised under the Financial Services and Markets Act 2000 whospecialises in investments of this kind. The information contained in this document isobtained primarily from the persons associated with the businesses an d therefore theaccuracy of the information cannot be guaranteed. We do not express any opinion on thesuitability of either the business or any investment in it.

The information contained does not constitute an offer or invitation to the public to subsc ribefor shares or debentures in any business and nor shall it or any part of it be relied upon inrelation to any such investment.

Please treat the information contained within this document as confidential and do not pass toothers without first seeking the approval of ABC Ltd. It may not be used for any purpose other than in considering whether you should enter discussion with the business described.


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Where to find Investors

Business Angel Networks (BANs)British Business Angel Association (BBAA)

www.bbaa. org .uk

21 Full members, 48 Associates

Also Professional firms regulated by FSAIn Herts Golf Club/Country pub!


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O ther Local Sources

EEDAR&D grantsProof of Concept

About to re-launch Selective financeRunning the Gauntlet

GEIF Ventures5m Co investment fund

Must secure at least 25k from GEIF BAMay investwww.geifventures.co.uk


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Process

Initial contact/expression of interestReview of business plan

Initial meeting to discuss investmentNegotiation processHeads of T ermsDue DiligenceLegalsInvestment


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C osts Professional Advice

Intellectual Property protectionBusiness plan preparation

T ax adviceDue DiligenceShareholders agreements

Arrangement Fees


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Professional Fees - Examples

Kingswood T ime based 200-300 per hour Payment on account - 1,500- 3,000 Success Fees 1% debt, 2% equity, Min fee

3-5,000Beer & Partners

Non-refundable engagement fee 3-5,000 Success fees 5% 4% share options


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Professional Fees More Examples

GEIF Preliminary filter free

Email introduction - 400 + VAT

, 4% success Presentation day - 750 + VA T , 4% success

Envestors T ime based fees Success 5%


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Professional Fees More Examples

C2 Ventures Case by case

Upfront 500 + VAT

Success typically 5%

Angels Den 99 registration fee If promising 400 to use plan template No success fees but no other help


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B usiness Valuation

Investors and Entrepreneurs assessment of value tend to differ by a factor of 10.

What is your business actually worth now?

Your business will only be worth something

in the future because of the investmentbeing made now.


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Methods of Valuation

Discounted cash flowGoodwill + net assets

Multiplier of post tax profitsInvestor return model 40%+David Beer

Good idea 250K Good idea with IP 500K Good idea with IP & order 750K


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Deal Structure

Equity Share - < 50%Ratchets earn back

Directors loans convert to equityShareholders loans conversion optionDirectors salaries bare minimum

Personal guarantees may be


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H eads of Terms

Intended to give some clarity from word GoOutline of deal

Amount of investment - sLevel of shareholding - %

T iming mile stonesBoard Representation

Exit intentionNon-binding

Except fees/Confidentiality/exclusivity


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C onfidentiality Agreements

Be sensibly suspicious!Investor background/connections/Other investments

NDAsprotect commercially sensitive informationNeed to be able to action

Exclusions

Public domain, legal/regulatory disclosures, disclosure toadvisors, own research

Exclusivity/Lock out ClauseDefined period, nominal consideration


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Due Diligence

Not too soon!Proportionate to level of investment time/cost

Customer contracts

Contractual liabilities Financial model IP advice/confirmation of protection Other litigation/disputes T ax indemnity

Compliance H&SFindings will affect valueMay even kill the deal - credibility


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Shareholder AgreementAddresses issues of controlProtects minority shareholdersContents

Amount and timing of investmentIncurring liabilities / making payments (Directors salaries, capital

expenditure, disposal of assets, taking out loans)

Anti dilution further funding roundsBoard representationExit strategy/timing

Buy out/buy back options Drag/ T ag T ransfer of shares on death

Anti competition clauseWarranties/indemnities


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Kingswood Corporate Finance

Howard Moss07885 962353

[email protected]

raising equity finance-1

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