Page 11 - Bus365 Issue 11 2021 WEB

THE COST OF RAISING MONEY FOR

BUSINESS GROWTH BY OLIVER WOOLLEY, ENVESTORS

As an entrepreneur you may have a growing business but perhaps would like to see it grow more
quickly and be able to capitalise on additional opportunities. To achieve this you may decide to raise
equity growth capital. But do you know what is involved and much this will cost?
o help set expectations, Envestors, size of your business, your current level of monitoring fees once the funds are in place.
which has raised over £100m for 200+ awareness and what kind of investor you’re These are usually around £6,000 per annum. In
Tbusinesses, has created an overview of targeting. some cases, you may be able to increase the
the costs of raising capital to help you budget. amount of fi nance raised to cover some or all of
For many, using an agency to produce a pitch the costs.
Upfront costs require around £7,000-£29,000, deck is a smart move. We see a lot of pitch
factoring in success and/or monitoring and due decks which make it di cult to understand what You can see from this why it takes money to
diligence fees for funds. Your total spend will the business is and why anyone would want to raise money. Fundraising is complicated and
be £20k-£60k, depending on where the funds invest in it. takes a lot of time. However, by understanding
come from and the total raise amount. what is involved and you can budget
Videos have been shown to drive engagement
accordingly, get the help you need and impress
As a percentage this spend can be as little as and may be worth considering. However,
potential investors.
5%-13% for raises above £500k or as much as a good video can be costly. £3k is a typical
9%-24% for raises at or below £250k. starting point.
Let’s review where you will need to spend to Registration fees
achieve your raise. Cold-approaching investors e.g. via LinkedIn
isn’t the best way to raise capital.
Legal fees (UK)
To avoid future problems, this is an area There are organisations, with networks of
worth spending your budget on. While we registered investors, which understand the type
always recommend working with a lawyer of deals of interest to their community. They
specialised in early-stage investments, you’ve usually charge fees for access. Some charge
a choice between platform-based services, like for investment readiness and promotion while
Seedlegals, starting at £1,000 or fi rms like CMS, others charge a fl at fee for access.
which while more expensive starting at £5,000, Fees range from £200-£6,000 and depending
are a safer choice for businesses beyond the on the service may mean you don’t need to
seed stage.
spend on advisory fees.
Selling shares in your business requires
numerous legal documents. For example, a
Term Sheet. This is a summary outlining the You can see from
material terms of the agreement. You can
create this, and your lawyer will use it as a basis this why it takes About the author
for further documentation. You’ll also require money to raise
a Shareholders Agreement, Subscription Oliver Woolley is CEO and co-founder of
Agreement/Investment Agreement, Disclosure money. Fundraising Envestors. Envestors’ digital investment
Letter, Articles of Association and Deed of is complicated and platform brings together entrepreneurs and
Adherence (used when new investors are investors across geographies, communities
joining a pre-existing group). takes a lot of time and sectors – creating the single
marketplace for early stage investment in
Additionally, you’ll need a Service Agreement the UK.
which includes employment contracts with Success fees
Envestors partners with accelerators,
the managers/directors, incorporating non- Success fees are payable as a percentage of
incubators and angel networks to provide
compete restrictions. Many investors will funds raised through an intermediary. Typically,
a white-label platform empowering them
review employment contracts during their 5% -7%, although some will charge much more,
to promote deals, engage investors and
due diligence. It’s not requisite to launch your of the funds raised. Some brokers may also ask
connect to other networks.
fundraise, but will required. for options.
Founded in 2004, Envestors has helped
Corporate fi nance advisory fees Due diligence fees and abort costs
Investment readiness means you have a clear These fees are often charged when working more than 200 high growth businesses
proposition and all requisite documentation with funds. They cover the cost of conducting raise more than £100m through its own
to support your raise. Some Local Enterprise legal, fi nancial and technical due diligence private investment club.
Partnerships (LEPs) or Chambers of Commerce on your company. This can be anything from Envestors is authorised and regulated by
o er subsidised ‘investment readiness’ £10,000 to £25,000 and is typically taken out of the Financial Conduct Authority.
programmes. Fees range from £1,000-£10,000, the funds they invest. If you pull out of the deal,
or a monthly retainer. you may also be liable for these costs as an Web: https://www.envestors.co.uk/
abort fee. LinkedIn: https://www.linkedin.com/
Marketing costs company/envestors-llp/
The right amount for marketing depends on Post-investment monitoring fees Twitter @EnvestorsLondon
several factors, including your audience, the Most investment funds will require you to pay

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