The document outlines a series of presentations and discussions focused on raising equity finance for SMEs in Cornwall, covering essential topics like investment readiness, legal considerations, and tax incentives such as EIS and SEIS. It emphasizes the importance of understanding market dynamics, differentiating offerings, and having a viable business model for attracting investors. Additionally, it provides insights into the documentation and legal costs associated with various fundraising scenarios and highlights the key criteria investors look for in potential investments.

1. E Q U I T Y I S N O T J U S T F O R P U N K S :
P R A C T I C A L I T I E S A N D P R I N C I P L E S

2. HOUSEKEEPING
@pkfFrancisClark

3. PROGRAMME
 8.20 – Raising Equity Finance: What’s the reality– Brent Treloar, the FSE Group
 8.40 – Investment Ready: Legals – Henry Maples, Murrell Associates
 8.55 – Investment Ready: Tax and Financial – Richard Wadman, PKF Francis
Clark
 9.10 - Questions
 10.00 - Close

4. Raising Equity Finance:
What’s the reality?
Brent Treloar
Business Development Manager

5. CIoS Investment Fund
 Mission: to invest £40million into high growth Cornish businesses
in order to enable sustainable economic growth
 Supporting ambitious and growing SMEs
 Creating jobs across the CIoS region
 Promoting new product development and innovation
 Leveraging private investment (match funding)
 Working with the wider finance community and partners

6. When to seek equity?
 Push Factors:
 Retained profits insufficient
 Further borrowings would raise ‘gearing’
 Pull Factors:
 Compelling market opportunity
 Need capital & expertise

7. What do our deals look like?
 Lower value – typically £100k to £750k
 Lower stakes – we do not seek controlling interests
 Shake things up – like to introduce new expertise
 Relationship - usually last 5 years
 Exit – we will want to see a return on our stake
 Growth – rapid expansion capital

8. What puts investors on high alert!
 Things fund managers hate to hear!

9. ‘We have first mover advantage’
11112We have first mover advantage

10. We will also be adding…

11. We only need 1% of this huge market'

12. We currently have no customers

13. We are worth £10m!

14. No EV point!

15. Summary -5 key Criteria for investment
1. Market – growing, desirable, right time & high barriers
to entry (IPR, exclusivity, niche)
2. Offering – compelling market proposition &well
differentiated
3. Business model – viable & scalable
4. Co-finance – is all co-finance in place?
5. Right team – risk/reward, capability & composition

16. Questions
 Contact:
Brent Treloar
Email: brent.treloar@thefsegroup.com
Tel: 07534 381045

17. Francis Clark breakfast briefing 2 July 2019
Equity funding
Investment readiness - Legals
Key areas:
• Share option arrangements
• Intellectual property rights
• Commercial contracts (supply & customer side)
• Employment contracts
• GDPR compliance

18. Francis Clark breakfast briefing 2 July 2019
Equity funding
Investment documentation & cost (investee perspective)
Investor scenarios Documentation Legal costs (ballpark!)
Early stage startup raising £200k
through crowdfunding
Initial advice on crowdfunding options
Minor amends to articles
Share subdivision & issue work
£600 plus VAT
Early stage start up raising £300k
through 3 x angel/HNW
investors
Light legal due diligence
Light subscription and shareholders’ agreement
Light amends to articles
Share subdivision & issue work
£2,500 plus VAT
Growth stage company raising
£3m through venture
capital/private equity fund
Medium legal due diligence
Heavy investment agreement
Heavy amends to articles
Share subdivision & issue work
£15,000 plus VAT

19. Francis Clark breakfast briefing 2 July 2019
Equity funding
Legal points commonly negotiated
• Share capital rights
• Pre-emption rights on share issue
• Reserved matters / veto rights
• Share transfer restrictions
• Leaver provisions
• Drag and tag along rights
• Warranties & limitations

20. Henry Maples
Partner
Murrell Associates LLP
henry.maples@murrellassociates.co.uk
01872 226998
07539278903

21. INVESTMENT
READINESS – TAX AND
FINANCIALS
Richard Wadman, Corporate Finance Director

22. VALUATION – BE PREPARED AND BE REALISTIC
 Negotiation
 “Known” = sum required by the Company now
 Questions = % equity to be sold
 Techniques
 Internal Rate of Return
 Discounted Exit Value
 Investor Return as a multiple of Investor’s investment
 Variables to consider
 Exit value (and related issues e.g., Buyer?)
 Timing of exit
 Dividends
 Discount rate (if using NPV)
 Further equity investment rounds = dilution?
 Projections

23. TAX – EIS AND SEIS ARE ATTRACTIVE TO INVESTORS
 Enterprise Investment Scheme (“EIS”)
 Seed Enterprise Investment Scheme (“SEIS”)
 Both designed to encourage individuals to risk capital for investment in
SMEs
 Encouragement is through tax incentives – see factsheet for EIS
 Tax free capital growth
 Income Tax relief
 Capital Gains Tax deferral relief
 Potentially lowers the investment cost; therefore enhancing the return
 EIS/ SEIS Eligible Companies – advance clearance

24. CHOOSING YOUR HORSE
Investor
selection
Size of
investment
Sector
focus
Non-
financial
attributes
Region
Investment
structure
Use of
funds
EIS and
SEIS
Size of
business

25. EQUITY – A MIND SET(ARE YOU READY?)
 “Giving away” part of your company v smaller slice of larger pie
 Cost v “Non-financial considerations” e.g., ability to enhance value
 If you could fund £250k of expansion through capital through debt then if assume interest at 10% per
annum and 5 year straight-line repayment of capital; “value erosion c/f equity” = £45k + £250k = £295k.
Compares to £1m value to Investor through equity BUT:
 Can you borrow
 Serviceability of debt
 Default position re debt
 Growth potential with Investors > than with debt
 Losing control v enhancing management team
100% of £1m
Yours Investor
80% of £5m
Yours Investor

26. EQUITY – BE PREPARED FOR SCRUTINY

27. BE PREPARED – GRANT ASSISTANCE

28. NEXT…
Q&A and/ or discussion
• Access to Finance
Future breakfasts – 1st Tuesday of the month
• EOT
• September – annual Food and Drink breakfast
• Property update and tax
And do not forget our blog, which contains details of new funds/
sources of SME funding that come to our attention, and our
Finance in Cornwall factsheet

29. 01392 667000
Exeter
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Salisbury
01823 275925
Taunton
01803 320100
Torquay
01872 276477
Truro
01752 301010
Plymouth
01202 663600
Poole
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