New Year resolutions don’t just extend to trying to fit and cutting back on the excesses. For many entrepreneurs and growing businesses, the resolution is all about making your ambitions a reality over the next 12 months.
Often, achieving your goals will require external investment in your business – something that's easy to say but can be more difficult to achieve, especially when certain issues that you always meant to get around to dealing with turn out to be significant obstacles for would-be investors.
When raising investment a business founder should be ensuring that their time and energy is focused on securing the best deal rather than running around dealing with historic things that never quite got to the top of the to-do-list.
So if your plan is to raise equity investment in 2018 here are some things to think about now to help avoid the last minute running around.
Our Top 10 Tips for getting investor ready
- Be organised
Set up a secure folder and start filing documents in it. Investors carry out a process called due diligence where effectively they review everything that has happened to date, as such, they will ask for a host of documentation about the company. If you know where all your documents are this process will be quick and easy. However, if you can’t find an important document delays may creep in and the investors may start to question your professionalism if, what they see as basic admin, is a problem.
- Deal with your share capital early
When a company obtains investment it is selling share capital therefore it is vital that the founder has a good understanding of what is being sold (i.e., the shares) and the effective of the sale (i.e., the dilution). As such, get a draft share capital table up and running and play with the different variables eg. a 10% share option pool via a 5% option pool or an investor holding 30% of the share capital compared to 20%.
- Statutory registers
Statutory registers (also known as company books) are the definitive record of who's who in the company. The registers should be up to date and complete. In addition to being a legal requirement the vast majority of investors will want to see the statutory registers before investing.
- Have all assets in the name of the company
Investors invest their money in the company therefore it is the company that should own the assets. If fantastic intellectual property has been developed by a founder but nothing has been done to transfer it to the company it is likely the founder will own the intellectual property not the company. As such, make a list of all the intellectual property and other assets which the company should own and check that it does legally own them.
- Keep in contact with all shareholders
When a deal is completing generally all the shareholders will be required to sign various pieces of paper. Given no one likes being asked to do something urgently at the last minute make sure you are in contact with the company's shareholders and have plans in place to deal with someone who may not always be readily contactable or available to sign.
- Get documents signed correctly
If a document isn’t signed correctly it may invalidate the whole document. Therefore, make sure when you are signing contracts all the witnesses have signed, dates and address added.
- Understand timescales
Finding the right investor for the company and completing the deal takes time. Often a period of 9 months is quoted to deal with the process from start to finish so make sure you understand your cash runway and start the investment process in plenty of time.
- Build knowledge
In order to discuss the terms of a deal it stands to reason you need to understand the meaning of the various terms and what is and is not market standard. Therefore, make a point of getting to know your good leaver from your bad leaver, your drag from your tag and so on.
- Understand the cost of money
It costs money to raise money and early stage risk capital can be expensive. A host of costs can be involved, for example, investor director's fees, monitoring fees, diligence fees and the investors legal fees. Therefore when you are considering how much to raise make sure you include the costs of the raise. Costs vary from deal to deal however 15% of the raise is often quoted for the average angel syndicate deal. So if you need £200,000 for the business you could actually be looking to raise £235,000.
- Speak to advisers at an early stage
It's never too early to engage with advisers. We are often helping companies with a potential investment months and sometimes years before the money comes in. Good advisers will help you get your house in order so the company is as investor ready as possible. This is really important as it allows the deal to be done quickly and cost effectively so the founder can get back to building a great company.
Get in touch
If you are a growth business seeking investment, or recognise any of the issues we've highlighted as potential concerns for you, please don’t hesitate to contact a member of our team.