Andrew Sloane of Morisons Solicitors LLP. Andrew is a partner with the Corporate team at Morisons Solicitors and formerly led the investment activity of the funds at the Scottish Investment Bank. Andrew will provide a practical guide to identifying prospective investors, approaching them with an investment proposition, raising funds, executing the deal and on-going investor engagement.

1. A Practical Guide to Equity
Investment
Andrew Sloane
7th November 2013

2. Why Raise Investment?
→ Develop Technology / Product
→ Gain Market Entry
→ Grow Market Presence
↓
Generate Value for Founders & Investors

3. Fundraising Process
Business Idea
Business Plan &
Financial Model
Executive Summary
Investment
Presentation

4. Planning for Investment
•
Understand Funding Landscape (Private & Public)
•
Map Funding Sources to Business Model
•
Identify Funding Requirement (Equity vs Grants)
•
Plan Fundraising Strategy
•
“Smart Money Squared”
•
“Investor Readiness”

5. Engaging Investors
•
Investors receive 100s of propositions/pitches a year
•
Catch the Eye
•
Articulate the Business Proposition / Opportunity
•
Deliver Investors’ Needs – Capital Play
•
Target Specialist Investors
•
Introductions – Credibility

6. What are Investors Looking For?
•
•
•
•
People
even better, a Team
Solutions
to real problems / issues
Innovation
new approaches via Technology or Business Model
Growth opportunity
significant / growing markets

7. Spell it Out – the 5Ps
•
•
•
•
•
Pain
A real need to have?
Paid for?
Premise
Business Model How is it sold?!
Proof
Sold it before? To whom? Prove the market!
People
Experience
Technical / Market / Growth / Management / Exit /
Failure
Recognise Skills & Experience Gaps
Purpose
Funding required - now and future
What for!
Value milestones
Exit planning

8. The 6TH “P” – Pitfalls
Be Realistic
•
Overestimating the Opportunity
•
Underestimating the Competition
•
Over / Under “Cooking” Financial Model
•
Manage Valuation Expectation
•
Technology Looking For A Problem

9. Investment Steps
•
•
•
•
Investment Proposition
Presentation
Term Sheet
Diligence / Appraisal / Approval
Test business plan
IP / Technology
Finance
Market/Competition
People Referencing
•
•
Legals
Completion

10. Doing the Deal
Deal Structures
•
Equity (Angel Investment vs. Venture Capital)
or
• Debt (secured or unsecured)
or
• Combination - Convertible Loan Notes (Secured and Unsecured)
•
Advantages & Disadvantages
- Balance Sheet
(strengthen/weaken)
- Alignment / Commitment
- Dilution / Loss of Control / Documentation
- Security
- Valuation
- Personal / Commercial Restrictions

11. Legal Documents (equity funding)
Investment Agreement
Key Provisions:• Conditions Precedent to release of funding
• Lump sum or tranched?
• Warranties:
- Granted by management and the company?
- Limitations on liability?
• Investor rights:
- Director & Observer appointments
- Information rights
- Investor majority/investor director veto rights
- Restrictive covenants on management (geography and duration?)

12. Legal Documents (cont.)
Articles of Association
Key provisions:• Share classes & rights (voting, dividends, return of capital)
• Board composition (number of directors, quorum, investor director(s))
• Pre-emption provisions: allotment, transfer
• “Drag-along” and “Tag-along” thresholds
• Good Leaver or Bad Leaver
Other Documentation
•
•
•
Disclosure Letter
Service Contracts
Board Minutes & Shareholder Resolutions

13. Completing the Deal
• Draft documents circulated, revised and negotiated among solicitors until
agreed
• Investors’ funds sent to lead investors’ or company’s solicitors ahead of
completion
• Documents executed by parties, funds released to company & investment
completes!!
However……..

14. Contact details:andrew.sloane@morisonsllp.com
0141 204 6747
© 2013 Morisons LLP