Download - Crowdfunding / Crowdcube Breakfast - Taunton

CROWDFUNDING / CROWDCUBE BREAKFAST 20 October 2014

www.francisclark.co.uk

Chairman’s welcome

Martin Lock

Partner


AdministrationHousekeeping

Timetable - Questions at the end and over breakfast

Interaction – Compulsory

Slides – See pack

http://www.google.co.uk/imgres?imgurl=http://thattechchick.com/wp-content/uploads/2011/12/ban-cell-phones.jpg&imgrefurl=http://thattechchick.com/ntsb-wants-to-ban-cell-phone-use-while-driving/&h=1200&w=1200&sz=108&tbnid=AxmdXAoGdQTgRM:&tbnh=90&tbnw=90&prev=/search?q=mobile+phone+banned&tbm=isch&tbo=u&zoom=1&q=mobile+phone+banned&usg=__UGk0n_OXmNlCjY9NvEknkw6_0D8=&docid=E2Xx0IJdiqvrQM&hl=en&sa=X&ei=O60cUYnPCMOFhQeMnoFY&ved=0CDIQ9QEwAQ&dur=331


Speakers

• Richard Wadman, Corporate Finance Director, Francis Clark

• Todd Wilson, Investment Analyst, Crowdcube

• Melissa Rose, Corporate and Commercial Solicitor, Ashfords


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


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


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”


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/

http://www.crowdcube.com/

http://www.crowdcube.com/

http://www.brewdog.com/equityforpunks

http://www.brewdog.com/equityforpunks

http://www.thincats.com/

http://www.thincats.com/

https://www.fundingcircle.com/

https://www.fundingcircle.com/

http://www.folk-folk.com/

http://www.kickstarter.com/



http://www.crowdfunder.co.uk/










“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

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

Todd WilsonInvestment Analyst

[email protected]

@Todd_L_Wilsonwww.crowdcube.com

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

mailto:[email protected]




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.


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.


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.


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.


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


Any questions?

Investment ready… for equity

Richard Wadman – Corporate Finance Director


Investment ready


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


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.


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


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?


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


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.”


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


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


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


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


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


Investor Ready - Conclusions

• Appropriate funding / understand the funder

• Business Case

• Plan B?

• Know the ‘deal breakers’ – due diligence

• Build in extra time


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


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