How much control can you afford to relinquish? It is essential you decide on this early on , as it is very easy to accept an investors terms when they are offering you a much needed cash injection. What level of control do you need to retain to be able to operate your business on a day-to-day basis? Loss of control in your business is one of the biggest disadvantages involved in selling equity stakes. There are situations where the founders of a business who invested years of their life into the company, are voted out of the company by investors or driven out due to change. Be careful to consider how involved you wish to remain and if it is of concern ,ensure the agreements protect your position and/or look at non-equity investment options.
Company House in order. Investors will inspect your Company documents before making a decision on whether to invest so are they up to date, structured correctly & concise. Are there available shares to sell , do your articles permit a sale , have you allocated shares correctly? Are your accounts available if not you should secure draft accounts or references? Also be careful of making tax efficient decisions when filing accounts, as sometimes a greater tax hit and more favorable accounts, is required to secure an investor. They may also want to know if your IP is registered/valued.
Your own house in order. Investors will be impressed and comforted if you have invested in legal paperwork for the security of the business. This includes employment contracts, terms and conditions with existing supplies and clients, confidentiality agreements, non-compete agreements , shareholders agreement with existing founders and investors as well as directors agreements. These should be up to date, transparent and available for an investor to inspect.
A credible business plan. Investors are put off by long technical documents; provide a concise summary on what your product/service is, how its performing and how it is to be marketed; Investors want to know see that they will generate a return & that you have a risk management strategy. You will need to prove your business is compliant with all legal and accounting requirements so ensure financial controls are in place.
Preparation is key. know your potential investors and whether they actually have the experience and finances to invest or understand what their objectives are. Allow them time to make a decision but keep in contact during this process, updating them with positive developments and news.
Experience goes further. Investors with experience have so much more to offer, they have contacts, knowledge and support which they will want to provide to your business. They want to see you succeed! If however, you don’t want to relinquish equity consider alternative investors such as entrepreneurs looking for a visa or other debt finance options.
Understand your market. Make sure you can demonstrate a knowledge of the market that your product/service is in and concisely communicate this to your investors. Investors will be holding confidence in you that you know your competitors and will want to know how you will respond to competition to put your business ahead. This is where you will need to demonstrate IP protection , non-complete clauses and confidentiality arrangements are in place and that the markets reaching into have been carefully selected.
Your investor’s point of view. Anticipate what they are likely to ask and think about certain scenarios. Make sure their potential questions will not expose flaws in your business strategy.
Exit plan. Ultimately investors want to know how they will get a return on their investment, make it clear within your business plan what your exit strategy is. Debt finance will need a commitment.
What alternatives are there to large equity investment? Those wishing to expand their business have new exciting opportunities by means of debt financing , lower interest rate loans, EIS/SEIS, government reliefs, immigration investment and corporate bonds. Corporate Bonds: this is long-term financing where no personal guarantees are required and repayment terms and interest amounts can be agreed between the parties. These bonds are fixed interest for fixed terms, so afford investors continuity and stability like no other offers. Foreign investment continues to be attracted to the UK for Visas some purely invest in bonds other directly into the company if employed as a director.
Brexit: will this effect you?
Do not be distracted or deterred by rumours following Brexit. Take action, adapt quickly and you can turn this into an advantage for you for example:
Start-ups in the technology sector in the UK and especially London are thriving. They have a sound platform to surpass enterprises in other countries. This firm continues to be part of successful investment rounds, with Asian and Russian investors seeking to plough even more investment than before into the UK. This quarter alone ARM Holdings, a Cambridge based technology company, will reportedly be acquired for in the region of £24billion by a Japanese company, Softbank.
- If interest rates go down (which is being predicted) it will assist company start-up loans.
- The UK startup culture has proven to be a significant hub of innovation both domestically and internationally. London was awarded no. 1 City in Europe for supporting both startups and scale-ups in the European Digital City Index in 2015, as such so long as skilled workers continue to seek out training in this developing sector and are permitted to do so, it can only continue to thrive
Should you be doing anything now?
I have heard lawyers promoting that companies review their contracts now, check their employee’s status and start looking at tax and trade agreements, but in reality none of this can be adapted until the regulations/agreements with the EU change.
What you could be doing is look at the advantages open to you right now, cheaper share prices, cheaper business purchase prices, cheaper property – along with cheaper loans to secure these. Overseas investment is coming in from Asia and Russia who see opportunities to start building, securing these relationships. Stay calm and look at the potential opportunities and adapt your business and model around this.
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