Preparation is key for your first funding round – if you get the first one right then it will create a solid foundation for future fundraising and will make the process a whole lot smoother next time around.
We have looked below at the key areas to get your business investor ready and make sure you can approach the first funding round with confidence.
Plan of action
You need to look at your business from the point of view of an investor, from the outside. Not only do you need to prepare the information which they are going to want to know but you also need to be clear about what you want to achieve from the funding round.
As a minimum, you will need to present a comprehensive business plan with detailed forecasts and growth projections; put together and present a robust leadership team; and decide on the amount of funding you want and on what terms.
Marketing
In order to be able to sell your business to investors, you will need to know everything about your business and be able to pitch it. A punchy presentation together with a compelling backstory can go a long way to capturing the imagination and the purse strings of investors.
Legal
Although not as glamorous as the marketing of the business, ensuring the business is compliant and in good order from a legal point of view is essential to reassuring investors that your business is a serious investment opportunity. They won’t have the confidence to invest substantial amounts of money in your business if it is not protected legally.
You will need to make sure all areas have been considered including:
- registering trademarks, patents or other intellectual property in the correct way;
- putting in place and updating the articles of association of the company and any shareholder agreements - these are the documents which will govern the shareholders’ rights and procedures;
- negotiating and executing major commercial contracts of the business;
- making sure employment contracts and policies are in place;
- ensuring filings at Companies house are correct and up to date;
- having adequate insurance in place;
- ensuring any other registrations (for example, data protection) are in place.
Many investors will undertake a legal due diligence process where they can review documents and information which is key to your business such as insurance certificates, trademark registrations, commercial contracts and company and employee information. Building a data room is an efficient way for both you and investors to access this information in one secure place.
Here at Harper James, our corporate experts can help you ensure your business is compliant and up to date with filing and registration requirements as well as helping to guide you through the information gathering process for due diligence exercises and data rooms.
Financials
Getting your financials clear and ready to present is crucial. This is what investors are most interested in and we’ve all seen the entrepreneurs on Dragons’ Den and The Apprentice who start floundering when the investors drill down into the numbers.
Thinking about the value of your business is something which may be forgotten amidst the pitches and business plans but this is a really important step to find out the business’ worth before agreeing to investor terms.
Investors will also be interested in the tax position and more specifically the availability of any tax reliefs such as the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS). The requirements of these schemes may require changes to the investment documents and the structure and rights attaching to the shares to be issued.
One of the most important aspects of your financials is the capitalisation or ‘cap’ table which gives investors a breakdown of who owns the company’s shares and in what proportions. This is important to calculate shareholder rights such as reserved matter rights and board appointment rights. The cap table needs to be accurate and look sharp so that it is easy for investors to digest quickly.
Another important financial tool to be able to present to investors is a cash flow forecast. This shows the money flowing into and out of your business, where that money is being invested and how much is being invested into growing the business which is what investors will be interested in. It can also offer various scenarios to demonstrate to investors that you have stress-tested the business and have considered different financial environments.
Next Steps
We have been supporting start-ups for many years so please get in touch with our corporate team if you have any questions or would like to discuss the first funding round process in more detail. Contact us on 0800 689 1700 or fill out the short enquiry form below and a member of our team will be in contact.
