Page 11 - Bus365 Issue 11 2021 WEB
P. 11

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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