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Finance in Cornwall 2014 follow up 
events 
22 October 2014 
EQUITY FOR SMEs
Equity for SMEs: 
introduction 
(including some housekeeping..) 
Richard Wadman – Corporate 
Finance Director
Administration 
Admin 
Timetable 
Questions at the end and over breakfast 
Interaction – Compulsory 
Slides – See pack 
ww...
Speakers and topics 
• Focus on practicalities for SME 
Speaker Topics being covered 
Richard Wadman Corporate Finance Dir...
Equity... “under-used” 
“It is worth noting that external equity funding is significantly under-used by 
smaller UK busine...
14 March 2011
14 March 2011 
What is Equity? 
o the provision of equity capital 
o by financial investors 
o over the medium or long ter...
14 March 2011 
What does equity finance mean? 
Founders 
Company 
Investor 
£ Shares 
Company 
Founders Investor 
Company
14 March 2011 
Is Equity Right for You? 
• Are you prepared to take on the responsibility of being an 
entrepreneur? 
• Ar...
14 March 2011 
Is Equity Right for You? 
• Does your company have a certain technological or 
competitive advantage that c...
14 March 2011 
What are the options? 
Friends / Family – may be willing to help... 
Business Angels – typically £10,000 - ...
14 March 2011 
What are the options? 
Venture Capital – look for businesses with USPs / 
competitive advantage 
Private Eq...
Equity for 
SMEs: sources 
and investment 
readiness 
Richard Wadman – Corporate 
Finance Director
Sources of Equity for the SME 
• “Friends, Families and Fools” 
Include related businesses? 
• Networks e.g., SWAIN, OXIN ...
Crowdcube: The equity solution?
Crowdcube: Success so far 
£37 million 
funded so far… 
£220,000 
average deal 
£1.9 million 
biggest deal 
£250,000 
larg...
Crowdcube: Case studies
Investment ready 
www.francisclark.co.uk
The Readiness Process 
• When, why and what funding is needed 
• Communicating the business proposition - 
Business plan a...
Investment Readiness: The Business Plan – A Guide 
• Executive summary 
• The Business –history and present: Where you are...
Investment Readiness: Projections – “How to” 
• Excel and/ or Sage Winforecast (other programmes) 
• Approach 
• Annual P&...
Investment ready – general housekeeping 
• Compliance and Legal 
- Licences / contracts/ legal title? 
- IPR ownership in ...
Investor readiness: Equity 
• Exit route and returns to the investor 
• Investors expertise vs. loss of 
independence? 
• ...
Investment readiness (equity): 
Why are SEIS and EIS important? 
Important to the Investor 
• De-risks an investment 
• Im...
Enterprise Investment Scheme 
• Rate of income tax relief – 30% up to maximum per investor of 
£1m per year 
• Capital Gai...
Seed Enterprise Investment Scheme 
• Rate of income tax relief – 50% up to maximum per investor of 
£100k per year 
• Capi...
SEIS/ EIS Qualifying activities 
Trade carried on on a commercial basis with a view to profit 
Not permitted activities in...
SEIS/ EIS: Practicalities – pre investment 
Get HMRC clearance re “permitted activities” 
Non-employees (Directors deemed ...
SEIS/ EIS: Practicalities – post investment 
Maintain qualifying company status for 3 years 
• Holding Company 
• Control ...
Investor Ready - Conclusions 
• Appropriate funding / understand 
the funder and their requirements 
• Business Case: 
• F...
Business support 
Get Set for Growth 
Growth Accelerator 
- Mentoring / 7 days coaching 
- Companies with 1-4 employees – ...
14 March 2011
14 March 2011 
How does it work? 
Think of Dragons Den as being the first of three critical 
phases: 
Phase 1: “the Den” –...
14 March 2011 
Legal Documents? 
The Investment Agreement: 
o Agrees funding levels and drawdown 
o Warranties and more wa...
14 March 2011 
Legal Documents? 
The Investment Agreement: 
o Combines Shareholders agreement 
o Reserved Powers 
o Compul...
14 March 2011 
Legal Documents? 
The Articles of Association: 
o Share rights 
o Share classes? 
o Binding on all sharehol...
14 March 2011 
What does private equity bring to you? 
– Long-term capital, solidly underpinning your company’s 
growth; 
...
14 March 2011 
What does private equity bring to you? 
– the adoption of high-performance management 
standards; 
– strate...
14 March 2011 
The information in this presentation is intended to be general 
information only and should not be interpre...
14 March 2011
41
42 
EQUITY INVESTMENT 
John Acornley 
Business Equity Finance Advisor 
Get Set For Growth 
john.acornley@getsetforgrowth.c...
43 
EQUITY – MAIN TYPES 
• Angel Investment 
• Private Equity/Venture Capital 
• Equity crowdfunding 
• We are building a ...
44 
ANGEL INVESTMENT 
• Individual or small group of individuals 
• Looking to invest money 
• May or may not want a Board...
45 
PRIVATE EQUITY/VENTURE 
CAPITAL 
• Firm set up to invest equity into businesses 
• Can usually invest larger amounts o...
WHEN SHOULD EQUITY BE 
CONSIDERED 
• Need/want some money and external help (Angel) 
• Can’t deliver the business plan wit...
WHEN SHOULD EQUITY BE 
CONSIDERED (ANGEL) 
EXAMPLE – HIGH GROWTH - AROMA CHEMICALS 
• Angel invests £30k for 3% of busines...
WHEN SHOULD EQUITY BE 
CONSIDERED (PRIVATE EQUITY) 
EXAMPLE – ACQUISITION & HIGH GROWTH 
RAINFORD GROUP PLC (RG) 
• RG rai...
49 
WHAT EQUITY 
INVESTORS LOOK FOR 
• Strong management team 
• Credible high growth Business Plan 
• Sensible initial va...
Francis Clark – who are we? 
• 7 regional offices: Taunton, Exeter, Torquay, Plymouth, Tavistock, 
Salisbury and Truro 
• ...
Disclaimer & copyright 
(c) copyright Francis Clark LLP, 2014 
You shall not copy, make available, retransmit, reproduce, ...
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Equity for SMEs

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Slides from the Equity for SMEs event held on 22nd October 2014 at Francis Clark offices, Truro. Joint event with Francis Clark, Stephens Scown and Get Set for Growth.

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Equity for SMEs

  1. 1. Finance in Cornwall 2014 follow up events 22 October 2014 EQUITY FOR SMEs
  2. 2. Equity for SMEs: introduction (including some housekeeping..) Richard Wadman – Corporate Finance Director
  3. 3. Administration Admin Timetable Questions at the end and over breakfast Interaction – Compulsory Slides – See pack www.francisclark.co.uk
  4. 4. Speakers and topics • Focus on practicalities for SME Speaker Topics being covered Richard Wadman Corporate Finance Director, www.francisclark.co.uk Francis Clark Sources of equity, including 3F’s and “the crowd” Investor ready SEIS/ EIS Christian Wilson Partner, Stephens Scown What is “equity” Legal documentation John Acornley Get Set for Growth Business Angels Network of Investors looking to invest in Cornish businesses
  5. 5. Equity... “under-used” “It is worth noting that external equity funding is significantly under-used by smaller UK businesses: only 3% of small businesses ’use equity finance, whereas 55 per cent use credit cards. Equity, along with alternative channels for debt capital, can potentially benefit these businesses in the early stages of their development. These smaller businesses often need significant capital injections to achieve their potential and may often be deemed inappropriate for bank finance alone due to their innovative nature. Whilst equity is not the subject of this review, it is important to create a framework to stimulate investor appetite for equity and lower the cost of raising such capital.” – Boosting Finance Options for Business, March 2012 • CBI made similar comments re under-utilisation of equity • http://www.francisclark.co.uk/news-views/blog/cbi-in-favour-of-increasing- www.francisclark.co.uk equity-funding-for-and-into-smes/
  6. 6. 14 March 2011
  7. 7. 14 March 2011 What is Equity? o the provision of equity capital o by financial investors o over the medium or long term o to non-quoted companies o with high growth potential
  8. 8. 14 March 2011 What does equity finance mean? Founders Company Investor £ Shares Company Founders Investor Company
  9. 9. 14 March 2011 Is Equity Right for You? • Are you prepared to take on the responsibility of being an entrepreneur? • Are you prepared to give up part of your company’s capital to a private investor? • Does your business operate in a growth market? • Are your company’s development prospects sufficiently ambitious? • Is your team prepared to follow you? Does it have the necessary experience?
  10. 10. 14 March 2011 Is Equity Right for You? • Does your company have a certain technological or competitive advantage that can be developed or exploited? • Are you prepared to share certain strategic decisions with shareholders outside your “inner circle”? • Is there a realistic exit strategy for all shareholders?
  11. 11. 14 March 2011 What are the options? Friends / Family – may be willing to help... Business Angels – typically £10,000 - £2,000,000 - early stages of development or established companies looking to expand
  12. 12. 14 March 2011 What are the options? Venture Capital – look for businesses with USPs / competitive advantage Private Equity Funds – look to invest in established companies with high growth potential Crowd Funding – a means of raising capital by appealing to a large group of people for small contributions
  13. 13. Equity for SMEs: sources and investment readiness Richard Wadman – Corporate Finance Director
  14. 14. Sources of Equity for the SME • “Friends, Families and Fools” Include related businesses? • Networks e.g., SWAIN, OXIN (Business Angels) • Conduits e.g., UEC Enterprises, GAIN? Get Set for Growth? • Virtual Networks e.g., Crowdcube • Venture capitalists and Private Equity e.g., Piper Private Equity, Altitude Partners LLP or Business Growth Fund • The Public (direct) – BrewDog “equity for punks” £1m in 24 hours www.francisclark.co.uk
  15. 15. Crowdcube: The equity solution?
  16. 16. Crowdcube: Success so far £37 million funded so far… £220,000 average deal £1.9 million biggest deal £250,000 largest single investment +90,000 members 145+ £2,600 average investment Successfully funded deals Stage of Growth By Category
  17. 17. Crowdcube: Case studies
  18. 18. Investment ready www.francisclark.co.uk
  19. 19. The Readiness Process • When, why and what funding is needed • Communicating the business proposition - Business plan and projections • Viable plan and credible management • Compliance (VAT and IPR etc) • Identifying and Building the relationships www.francisclark.co.uk
  20. 20. Investment Readiness: 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 www.francisclark.co.uk The opportunity and how you will exploit it. Why you will succeed. Financial implications and finance required.
  21. 21. Investment Readiness: 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
  22. 22. 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
  23. 23. Investor readiness: 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
  24. 24. Investment readiness (equity): Why are SEIS and EIS important? Important to the Investor • De-risks an investment • Improves ROI Important to you • As above www.francisclark.co.uk “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.”
  25. 25. 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
  26. 26. 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
  27. 27. 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
  28. 28. 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
  29. 29. 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
  30. 30. Investor Ready - Conclusions • Appropriate funding / understand the funder and their requirements • Business Case: • Funding to fit with and presentation of • Should override emotions? • Know the ‘deal breakers’ / Plan B? • Build in extra time www.francisclark.co.uk
  31. 31. Business support Get Set for Growth 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
  32. 32. 14 March 2011
  33. 33. 14 March 2011 How does it work? Think of Dragons Den as being the first of three critical phases: Phase 1: “the Den” – heads of terms agreed between the founders and the investor Phase 2: legal and financial due diligence Phase 3: completion – legal documents signed off, cash paid into the company and shares issued to the investor.
  34. 34. 14 March 2011 Legal Documents? The Investment Agreement: o Agrees funding levels and drawdown o Warranties and more warranties! o Company owns IPR o No litigation o No liabilities
  35. 35. 14 March 2011 Legal Documents? The Investment Agreement: o Combines Shareholders agreement o Reserved Powers o Compulsory Sale o Potential Loss of original owner control
  36. 36. 14 March 2011 Legal Documents? The Articles of Association: o Share rights o Share classes? o Binding on all shareholders
  37. 37. 14 March 2011 What does private equity bring to you? – Long-term capital, solidly underpinning your company’s growth; – increased visibility with bankers, suppliers and clients; – a partnership, sharing the risks and the rewards; – an investment fixed within the framework of a negotiated contract;
  38. 38. 14 March 2011 What does private equity bring to you? – the adoption of high-performance management standards; – strategic and operational support along with financial advice in times of crisis; – assistance with subsequent financing operations; – alliances due to the investor’s network of contacts and portfolio of investments; – a partial or total exit strategy.
  39. 39. 14 March 2011 The information in this presentation is intended to be general information only and should not be interpreted as legal advice. English law is subject to change so whilst Stephens Scown LLP seeks to ensure the information contained in this presentation is up to date and accurate, the law can change quickly and no guarantee is made as to its accuracy which means the information should not be relied upon. Presentation slides should not be viewed as an alternative to professional advice and Stephens Scown LLP does not accept liability for any action taken or not taken as a result of this information.
  40. 40. 14 March 2011
  41. 41. 41
  42. 42. 42 EQUITY INVESTMENT John Acornley Business Equity Finance Advisor Get Set For Growth john.acornley@getsetforgrowth.com 22nd October 2014
  43. 43. 43 EQUITY – MAIN TYPES • Angel Investment • Private Equity/Venture Capital • Equity crowdfunding • We are building a network of equity investors who wish to invest in Cornish businesses
  44. 44. 44 ANGEL INVESTMENT • Individual or small group of individuals • Looking to invest money • May or may not want a Board seat • Want a return from their investment
  45. 45. 45 PRIVATE EQUITY/VENTURE CAPITAL • Firm set up to invest equity into businesses • Can usually invest larger amounts of money • Will probably want a Board seat • Have resources to help growth
  46. 46. WHEN SHOULD EQUITY BE CONSIDERED • Need/want some money and external help (Angel) • Can’t deliver the business plan without the money and 46 the external help (Private Equity)
  47. 47. WHEN SHOULD EQUITY BE CONSIDERED (ANGEL) EXAMPLE – HIGH GROWTH - AROMA CHEMICALS • Angel invests £30k for 3% of business • Business initially valued at £1m • Angel takes Board seat (Chair) • Business grows and is sold for £20m four years later 47
  48. 48. WHEN SHOULD EQUITY BE CONSIDERED (PRIVATE EQUITY) EXAMPLE – ACQUISITION & HIGH GROWTH RAINFORD GROUP PLC (RG) • RG raises £1m equity for 25% of RG • RG buys GEC division for £750k cash and £750k deferred • RG grows combined business and sells five years later for £80m 48
  49. 49. 49 WHAT EQUITY INVESTORS LOOK FOR • Strong management team • Credible high growth Business Plan • Sensible initial valuation • Exit strategy • EIS/SEIS approval (for Angel investment) • Good advisers (corporate finance, tax, legal)
  50. 50. 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 www.francisclark.co.uk
  51. 51. Disclaimer & copyright (c) copyright Francis Clark LLP, 2014 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by Francis Clark LLP in any format whatsoever unless you have obtained prior written consent from Francis Clark LLP to do so and entered into a licence. To the maximum extent permitted by applicable law Francis Clark LLP excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by Francis Clark LLP. These materials and /or any services provided by Francis Clark LLP are designed solely for the benefit of delegates of Francis Clark LLP. The content of these materials and / or any services provided by Francis Clark LLP does not constitute advice and whilst Francis Clark LLP endeavours to ensure that the materials and / or any services provided by Francis Clark LLP are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by Francis Clark LLP; nor do we commit to ensuring that these materials and / or any services provided by Francis Clark LLP are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by Francis Clark LLP are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law Francis Clark LLP will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by Francis Clark LLP, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited. www.francisclark.co.uk

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