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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