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Slides from the Crowdfunding / Crowdcube Breakfast event held on 20th October 2014 at Francis Clark offices, Taunton. Joint event with Francis Clark, Ashfords and Crowdcube.
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CROWDFUNDING / CROWDCUBE BREAKFAST 20 October 2014
www.francisclark.co.uk
Chairman’s welcome
Martin Lock
Partner
www.francisclark.co.uk
AdministrationHousekeeping
Timetable - Questions at the end and over breakfast
Interaction – Compulsory
Slides – See pack
www.francisclark.co.uk
Speakers
• Richard Wadman, Corporate Finance Director, Francis Clark
• Todd Wilson, Investment Analyst, Crowdcube
• Melissa Rose, Corporate and Commercial Solicitor, Ashfords
www.francisclark.co.uk
Francis Clark – who are we?
• 7 regional offices: Taunton, Exeter, Torquay, Plymouth, Tavistock, Salisbury and Truro
• UK Top 25 Firm (Accountancy Age 2014)• 49 Partners and over 390 staff• Identified in December 2013 by the London Stock Exchange as one of
the ‘1000 Companies to Inspire Britain’• Largest range of specialists located in the South West• Awarded ‘Best VAT consultancy’ at the Taxation Awards 2014• Awarded ‘Tax Award of the Year (non global firm)’ in the British
Accountancy Awards 2012• Awarded ‘Best Tax Practice in a Regional Firm’ at the Taxation Awards
2012• Awarded ‘Auditor of the Year – Mid Tier’ at the national Financial
Directors’ Excellence Awards 2011
Crowdsourcing equity
Richard Wadman – Corporate Finance Director
www.francisclark.co.uk
Grants, Debt and Equity – The Funds
Routes to Equity
• “Friends, Families and Fools”
Include related businesses?
• Networks e.g., SWAIN, OXIN
• Conduits e.g., UEC Enterprises, GAIN?
• Virtual Networks e.g., Crowdcube
• Venture capitalists and Private Equity e.g., Piper Private Equity, Altitude Partners LLP or Longwall Venture Partners LLP
www.francisclark.co.uk
Grants, Debt and Equity – The Funds
Crowdcube – not just equity..
“Eden Project crowdfunding raises £1.5m in 20 hours - The charity sold £500 bonds in 20 hours in return for 6% interest a year”
www.francisclark.co.uk
Crowdsourcing
• Equity e.g.,
• Crowdcube - http://www.crowdcube.com/
• BrewDog - http://www.brewdog.com/equityforpunks
• Debt e.g., Thin Cats - http://www.thincats.com/ Funding Circle https://www.fundingcircle.com/ or
• ‘Peer to Peer’ e.g., http://www.folk-folk.com/
• Rewards e.g., Kickstarter - http://www.kickstarter.com/ or Crowdfunder http://www.crowdfunder.co.uk/
http://www.francisclark.co.uk/news-views/blog/crowd-funding-born-in-the-usa/
http://www.francisclark.co.uk/news-views/blog/crowdsourcing-of-funds-for-smes-an-introduction/
http://www.francisclark.co.uk/news-views/blog/crowdfunding-rewards/
http://www.francisclark.co.uk/news-views/blog/crowdsourcing-debt/
“Q1 2013 showed the lowest ever level of use of external finance by SME’s” – SME Finance Monitor, Aug ‘13
“Access to finance is a “major barrier” to growth for more than one in five small companies” – FT, Mar ’12
“Less than one in five SME’s have attempted to raise finance in the last year – with 40 per cent of applications rejected” – RealBusiness, Sept ‘13
The problem
Crowdcube is the world’s first and leading equity crowdfunding platform giving entrepreneurs a new way to raise investment
Fully authorised and regulated by the Financial Conduct Authority
The solution
The solution
The equity solution
The mini-bond solution
More than just financial considerations
4-5 years trading
Capacity to engage with tens of thousands of customers
£5 million + turnover
At least EBITDA profitable
Investment used for tangible growth i.e. assets rather than restructuring
Creating a buzz
Success so far
£37 millionfunded so far…
£250,000largest single investment
+90,000members
145+£1.9 million
biggest deal
£2,600average investment
Successfully funded deals
£220,000average deal
Stage of Growth
By Category
Case studies
Case studies
Growth
Source: Beauhurst, UK Equity Investment Review 2013, February 2013
UK’s ‘Most Active Seed Investor’ in 2013Beauhurst report stated Crowdcube has “dominated the UK equity crowdfunding marketing since launch and was responsible for 70% of crowdfunded deals in 2013.”
2012 2013 Growth
investment
£2.2m £12.2 + 562%
deals 22 54 + 145%
average investment
£1,800 £2,800 + 56%
Why do investors love us?
“Crowdcube is a breath of fresh air; it’s a convenient, easy-to-use and makes investing far more accessible.”
Rupa GantraCrowdcube Investor
Why do our entrepreneurs love us?
Leading the transformation of UK investment finance
No. 1 ‘Seed Investor’ in the UK
Crowdcube Venture Fund managed by Braveheart Investment plc
Enabling business growth on the world’s leading investment crowdfunding platform
Summary
CROWDFUNDING
Melissa Rose
Ashfords LLP
20 October 2014
Crowdfunding | 20 October 2014 26
David [email protected] 526004
Melissa [email protected] 526045
Key Contacts
Dominic [email protected] 526030
Crowdfunding | 20 October 2014 27
1. Crowdcube & Ashfords
• Ashfords integral in pre-authorisation model and obtaining FCA authorisation on 1 February 2013;
• Legal advisor to Crowdcube – corporate and regulatory;
• Recommended legal advisors for investee companies that successfully pitch through Crowdcube;
• Advised over 100 companies;
• Advise on start ups, growth companies and later stage funding.
Crowdfunding | 20 October 2014 28
2. Legal Steps – Pre Pitch & Documentation• Content of pitch must be fair, clear and not misleading and give details of
share rights and constitutional documents;
• Prior to pitching:– Check existing constitutional documents;– Check consents required.
• Waive pre-emption on issue from all existing shareholders;
• Board resolution to issue the shares;
• Shareholder resolution to adopt new Articles of Association, sub-divide the nominal value of the shares and grant directors with authority to allot new shares.
Crowdfunding | 20 October 2014 29
3. Legal Steps – Articles
• Articles of Association:
– Crowdcube has template Articles of Association;– Drafted by Ashfords;– Specifically designed for crowdfunding;– Include two classes of shares (A: voting, and B: non-voting) – A shares
for significant investors;– Pre-emption on issue and pre emption on transfer – but only for A
Shareholders;– Drag along, tag along, board representation and electronic
communication provisions.
– Where investee company has its own Articles – must work for crowdfunding i.e. equal dividend rights, no restrictive covenants, no subordinated rights, equal rights on an exit, drag along etc.
Crowdfunding | 20 October 2014 30
4. Legal Steps – Shareholders’ Agreement• Shareholders’ Agreements:
– Normal for VC/Private Equity investment – but not recommended for crowdfunding due to practical implications of obtaining signatures, and issue of unanimity for amendments with significant number of shareholders;
– Existing shareholders’ agreements usually need amending or varying – likely with unanimous consent – pre-pitch consideration;
– Can be drafted to bind certain groups of shareholders only e.g. founders if want to retain in place due to investor concerns or keep matters private;
– Be careful of provisions restricting issues/transfers to persons signing a deed of adherence.
Crowdfunding | 20 October 2014 31
5. Other Issues
• Share numbers - £10 investments, valuations, rounding/share price.
• EIS/SEIS – get tax advice!!!
• Employment Related Securities
• Share Option Schemes – fully diluted basis calculations
• Ongoing compliance – accounts and filings
• Corporate Secretarial
Crowdfunding | 20 October 2014 32
Any questions?
Investment ready… for equity
Richard Wadman – Corporate Finance Director
www.francisclark.co.uk
Investment ready
www.francisclark.co.uk
The Readiness Process
• When, why and what funding is needed
• Communicating the business proposition - Business plan and projections
• Viable plan and credible management
• Building the relationship
www.francisclark.co.uk
The Business Plan – A Guide
• Executive summary
• The Business –history and present: Where you are now, including historic financials, ownership, awards, accreditations etc.
• The market and the opportunity
• Future strategy/ plans/ risks
• Operations (changes + practicalities)
• Financial – summary of projections
• Finance required
• The team
• Environment, Equal Opp and Local Economy etc - Depending on the type of finance sought may have to consider these issues
The opportunity and how you will exploit it. Why you
will succeed.
Financial implications and finance required.
www.francisclark.co.uk
Projections – “How to”
• Excel and/ or Sage Winforecast (other programmes)
• Approach
• Annual P&L to Monthly P&L
• Cash flow assumptions
• Capital expenditure (profile)
• Other non-P&L items e.g., loans
• Opening balances
www.francisclark.co.uk
Investment ready – general housekeeping
• Compliance and Legal
- Licences / contracts/ legal title?
- IPR ownership in the company?
- Statutory Accounts/management accounts
- VAT, PAYE/NI, Books and records in order?
www.francisclark.co.uk
Requirements: Equity
• Exit route and returns to the investor
• Investors expertise vs. loss of independence?
• Be prepared to discuss valuation
• Emotional!
• Be aware of FSMA regulations
• SEIS/ EIS
www.francisclark.co.uk
Why are SEIS and EIS important?
Important to the Investor
• De-risks an investment
• Improves ROI
Important to you
• As above
“Businesses raised £1,017 million through EIS in the
year to 31 March 2012, up from £545 million raised in
2010-11”
“More than 2,000 companies have raised around £2
billion in equity cash from investors, according to HM
Revenue & Customs (HMRC), which
monitors SEIS.”
www.francisclark.co.uk
Enterprise Investment Scheme
• Rate of income tax relief – 30% up to maximum per investor of £1m per year
• Capital Gains tax relief – Hold Over relief. Exemption for gains on EIS investment if income tax claimed
• Mandatory investment period – 3 years
• Qualifying investment
• Cash for Ordinary shares in unlisted company
• < 250 employees
• Net Assets < £15 million
• Carrying out permitted activity
• Not controlled by another company
www.francisclark.co.uk
Seed Enterprise Investment Scheme
• Rate of income tax relief – 50% up to maximum per investor of £100k per year
• Capital Gains tax relief – 50% relief on capital gains realised on asset disposals used to make SEIS investment. Exemption for gains on SEIS investment if tax relief income tax relief claimed
• Mandatory investment period – 3 years
• Qualifying investment
• Cash for ordinary shares in unlisted company
• < 25 employees
• Net Assets < £200k
• Carrying out permitted activity
• Not controlled by another company
• Trade < 2 years old
www.francisclark.co.uk
SEIS/ EIS Qualifying activities
Trade carried on on a commercial basis with a view to profit
Not permitted activities include:
• Dealing in land, shares and other financial instruments
• Banking and other financial activities
• Dealing in goods, other than ordinary retail or wholesale activity
• Letting or leasing assets on hire
• Legal and accountancy services
www.francisclark.co.uk
SEIS/ EIS: Practicalities – pre investment
Get HMRC clearance re “permitted activities”
Non-employees (Directors deemed not be employees)
State aid – interaction with grants
Forms/ paperwork to HMRC within set deadlines
Amount raised - limits
www.francisclark.co.uk
SEIS/ EIS: Practicalities – post investment
Maintain qualifying company status for 3 years
• Holding Company
• Control of all subsidiaries
• Permitted activity
Investor returns and control – care
www.francisclark.co.uk
Investor Ready - Conclusions
• Appropriate funding / understand the funder
• Business Case
• Plan B?
• Know the ‘deal breakers’ – due diligence
• Build in extra time
www.francisclark.co.uk
Business support
Growth Accelerator- Mentoring / 7 days coaching
- Companies with 1-4 employees – £600 plus £700 VAT
- Companies with 5-49 employees – £1500 plus £700 VAT
- Companies with 50-250 – employees - £3000 plus £700 VAT
- Leadership (subsidised assistance with projections for example, £2k per member of management team)
Growth vouchers- 50% subsidy up to £2k for advice on:
- Managing cashflow, late payments and negotiating finance
- Developing skills and taking on staff
- Improving Leadership and Management
- Marketing, attracting and keeping customers
- Making the most of digital technology
www.francisclark.co.uk
(c) copyright Francis Clark LLP, 2014
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