Raising finance

Question 1

What are the requirements for fulfilling SEIS?

Answer 1

maximum raise of £150k.

investors cannot have more than 30% stake.

Investors receive up to 50% tax relief.

company must have fewer than 25 employees, less than 2 years old and assets of less than 200k

Question 2

What are preference shares and what are the implications for a liquidation event?

Answer 2

Preference stock is for institutional investors.

• senior liquidation preference (receive dividends before common stock holders)
• board representation
• anti-dilution

e.g. if an investor has 1.5x preference shares, he will get 1.5 times his money back in a liquidation event before common stock holders access the money.

participating preference shares;

In a liquidation event, participating preference shareholders can also access common stock once they have exercised their preference share rights and recouped their money (double dip).

e.g. if the investor owns a 10% equity share, he will also receive 10% of the common stock value.

Question 3

Identify and comment on the factors to be taken into account when seeking finance for a new small business with aspirations to grow rapidly.

Answer 3

-

Question 4

What are the funding stages and options for tech startups?

Answer 4

Seed - team assembled, beta launch, metrics, cust dev.

• angels, grants, 3Fs, accelerators, crowdfunding.
• £50k - 1m

Development (series A) - product development, prototype, launch, sales.

• VC
• $1m -5m

Growth (series B, C, D) - growth and expansion
- VC
$5m+

Question 5

3Fs

Answer 5

Start small, bootstrap and get money from 3Fs.

+ founders retain control
+ little time spent on investment
- unable to fund growth
- loss of advice from investors

Question 6

Public funds/ grants

Answer 6

Direct investment or eliminating barriers e.g. SEIS.

+ doesn’t require repayment
+ no tax
- complex and long process
- subject to requirements

Question 7

Crowdfunding

Answer 7

\+ community engagement 
\+ validate the idea 
\+ no investor pressure (milestones)
- small amount of money 
- lack of investor expertise

Question 8

Accelerators

Answer 8

+ experienced mentors
+ rapid progress
+ access to network
- small money for a bit of equity

Question 9

Angels

Answer 9

wealthy individuals, hands-on approach.

\+ value adding 
\+ network of contacts 
\+ no high fees 
- rarely follow-on money 
- want to take part in decisions

Question 10

VC

Answer 10

Look for extraordinary returns, invest looking for IPO or acquisition.

\+ value-adding and reputation
\+ network of contacts 
\+ attract other investors 
\+ follow-on investment 
- high control and milestones 
- lose ownership
- voting rights

Question 11

What is dilution?

Answer 11

when stock ownership (percentage) decreases as more investors are introduced.

anti-dilution is when preference shares (generally) cannot be diluted. This prevents the devaluation of shares held by preference shareholders.

Question 12

Things to include in a term sheet

Answer 12

• Voting rights
• Protective provisions for liquidation, selling shares
• board of directors
• Insurance
• Employee pool (10-20%, 4 year vesting).
• Dividends
• Anti-dilution
• Pre-money valuation