Whether you chose to crowdfund or take the VC or angel route, you need to think ahead about how best to prepare for taking on equity finance investment.
Raising investment doesn’t have to be difficult and once you know how much you want to raise and how you want people to invest in your business, you can take different routes that suit your needs.
Timing is probably the first thing to consider when raising finance. As a young business, you need to decide if raising equity finance at an early stage of the company’s growth is right, given that you are giving away shares in the business. If you haven’t built the momentum and traction yet, then you may not be in a position to reassure investors.
Considering the type of investor you want is also important. A founder’s friends and family are often the first sources of capital for fledgeling ventures. Getting angel investment will help take the business to the next level.
Businesses typically use early investment rounds to understand and optimise their business model so that can have a strong investment narrative for later stage venture capital funding.
Series A venture capital investment is typically about growth and scaling your business rapidly.
Providing tax incentives for investment
Another item for the ‘to do’ list should be ticking the EIS or SEIS box, which in simple terms is all about tax relief for investors. Businesses need to check they qualify first via HMRC. This is worth looking at earlier rather than later, as the process can be bureaucratic. This is a very important factor for many investors.
The Enterprise Investment Scheme is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares. For investors, it is a tax-efficient way to invest in small companies and can help businesses attract investors in.
The Seed Enterprise Investment Scheme aims to encourage seed investment in early-stage companies. A business has to meet certain requirements before they can submit EIS or SEIS forms to HMRC. Once these have been processed by HMRC they will be sent out to investors. The process can take around six months from when you receive the share certificate to completion.
Another important box to tick is checking whether you own all of your IP, trademarks etc. Companies with great ideas and big opportunities to grow and scale inspire investors. But all of this can come crashing down if investors then find out that the company doesn’t actually own the intellectual property as this is often where the real value of a company lies.
Creating a fundraising narrative
When it comes to attracting potential investors, imagine yourself in their position – what would they want to know?
You need to think about your fundraising narrative in order to maximise the opportunity. Ensure you have a clear, concise proposition that outlines the market potential articulately – and why someone would want to invest in it. Remember people are more likely to invest in a business if it’s something they’re passionate about, so inspire and excite them.
Every pitch on Crowdcube goes through a thorough due diligence process and this applies to any form of investment. Outline the company’s strategy for growth and show that the business is scalable. Investors want to know about the potential return on their investment, so outline how and when this could happen.
What happens after a fundraise?
The job of fundraising is not by any means done once you get investors on board. People who have invested in your company have a vested interest in seeing it being well managed and successful. Most of them are driven to invest because they believe in your company’s future, so you have a duty of care and certain responsibilities to keep them updated on progress.
You need simple, but effective strategies for your investor relations, so you are seen as reliable, transparent and accountable. These could include investor-focused emails or blogs, or having a dedicated investor section on your website.
Remember investors are not just the money, but your brand advocates, business contacts, potential customers and partners, so keep them happy and engaged.
Luke Lang is the co-founder of Crowdcube, which has helped hundreds of businesses raise investment. Crowdcube is The Pitch’s Investment Expert Partner providing advice and mentoring. Click here to find out more about entering The Pitch.