Many early stage Companies in Europe are caught in a funding gap where they may need £1-2M of funding in a business that is too early for the majority of Europe’s “UN“-Venture capitalists and a little too much for the Angel community to put in at once.
Nothing is black and white and a few excellent companies can raise this amount via Angels, Small VCs and VCTs (Venture Capital Trusts) but there are many other cases where it’s not possible through these routes especially if you have little in the way of revenues or profits.
A further option with pluses and minuses is to list on a UK stock exchange.
Five years ago you could have considered the London AIM market but now the costs and entry points are far too high for early stage Companies – fees start at £500K and you need a valuation of £20M. You also need a track record of some sort and the ability to scale very fast to keep investors happy.
Now please bare in mind these observations are very general and all sorts of Companies have and do list on AIM but it’s much harder and much more expensive than it used to be and for obvious reasons those raising small amounts of capital with modest valuations don’t want to pay out £500K unless it makes real sense to do so. In some cases it will make sense to invest that amount for the visibility of AIM for example.
Stepping into the gap left by AIM is the PLUS (old OFEX) market. Back when AIM was less successful PLUS was seen as as rather dangerous place to raise funds and had very little liquidity and added little value.
Today PLUS has changed, it is now run more professionally by the Plus Markets Group, shares are tradeable by the general public and the reputation of the market is improving fast. The market is still much smaller, a lot less liquid and less attractive than AIM but it is a place an early stage Company can raise funds at a lower valuation £1-10M, there is no requirement for profits or revenues and you can raise £1M plus at a lower cost than AIM.
- Costs to raise £1M + are in the region of £150-200K
- You can list within 3 months
- The process is similar to AIM but a lot less onerous on the management team and legal requirements
- Brokers will do a lot of the initial ‘selling’ of your float with a smaller roadshow than AIM
- Your Company will be a PLC and have better visibility than an unlisted Company (a double edged sword)
- Your stock will be tradeable and as such could be an incentive to management via an EMI share option scheme
- PLUS is seen as a feeder market for AIM and its easier to hop onto AIM from PLUS than it is from a standing start
- Two thirds of the fees are contingent so it less of a risk if you don’t hit your minimum placement target
- The market is seen as an also ran at the present and puts off some potential investors such as VCTs
- You will have a fixed valuation that can easily fluctuate making buying you cheap an easy option for the competition
- You still have to a lot of the hard work required by AIM using up a lot of management time and resources
- You will have to pay twice if you want to list on AIM later there are no discounts for moving from one market to another
- There is no guarantee of success and you could lose £40K+ in up front fees if you don’t hit your minimum placement target
- The people that buy into PLUS Companies are typically VCTs and Angels, you could pitch them directly and save the cost
- Its costs much more than the typical 3-5% associated with funding via an Angel group
- Brokers often want warrants and options in your business as well as a hefty 5% commission on funds raised
As you can see there is quite a lot to consider when making this choice, the stakes are high, and you could get the money in other ways than PLUS but it has worked well for some Companies like Weetabix and Arsenal football club for example.
As ever advice is the key to making the right decision – make sure you talk to PLUS directly (they have some very useful literature that explains all) as well as their top brokers. In the case of IT I narrowed down the list of key brokers to St Helens Capital, Ruegg and Seymour Pierce.
Also, the costs for legal, accounting, brokerage and PR are very variable in my experience and it pays to negotiate everything!
PLUS is not the only market you can consider, there is a new kid on the block called AngelBourse that specialises in IT and smaller raises but I have no direct experience of it’s success. It acts like the many investment sites that tout your business plan to Angels but is also a formal market.
This what they say: AngelBourse provides an online platform where investors can view and research companies, participate in direct equity investments or buy and sell shares in unquoted companies.
Typically AngelBourse can help companies looking to raise in the region of £100k – £2m, be they start-up or well established businesses; but ultimately the most important factors are a strong management team, with commitment, ability and a good business proposition.
Placing your company on the AngelBourse market, a regulated trading facility and investor relations service fused into one low-cost package, creates a realistic exit strategy for directors and investors, allowing you to trade shares and value your business without the associated costs or full regulatory burden of the main markets.
It is an ideal stepping stone for companies considering a future listing on OFEX, AIM or the Official List and will let investors know you are serious about growth.
Finally, another slightly off the wall suggestion is Sharemark which can offer an alternative place to list and trade your shares.
Summary: GEIF (Great Easter Investment Forum) is a leading UK business angel network located in Cambridge which exists to introduce ambitious, innovative companies seeking funding to business angels and other early-stage funders seeking quality investment opportunities.
Launched in 1995, GEIF is part of the NW Brown Group, a Cambridge-based company offering a wide range of financial services to private and corporate clients, and in 2003 launched GEIF Ventures, a £5m co-investment fund which exists to match investments made by GEIF business angels into high-growth companies.
A big benefit of this group is the match fund, if you raise angel funds from the group you can apply to GEIF Ventures, the co-investment fund.
I enjoyed working with the team and they are trying to ensure that the maximum opportunity is achieved on the day and they cut down on all the accountants and lawyers that tend to plague these events.
Presentation format: 10 Min, Powerpoint slides. 6 Companies over an hour before lunch. Networking before and after. If you are chosen you will also have the benefit of a break out room where potential investors can ask questions. No questions during the presentations.
Costs: £750 to present plus 4% success fee. Clarity required on your existing potential investors will be needed in advance to segment them from those you meet on the day.
Contacts: Larissa Chamberlain
Approach: Apply via the web site below or get introduced. Then you need to pass the two-stage preliminary filter for either of the e-mail introduction or presentation day options which includes an application and meeting. Then you can stand up in front of 50-80 investors in the Cambridge Tech. Park.
Do’s: Make sure you are ready and that you are squeaky clean on your accounts and references as they will examine your case closely. Being ready means having a well practised 10min pitch that is attractive to the tech/high growth audience – you will required to practise with them in advance and you will need to tailor this as they suggest.
You will get contact details for all investors that attended your break-out sessions you should contact interested investors as soon as possible after the Investment Day.
Don’ts: Be late or unprepared, GEIF are a highly professional outfit as they are managed by NW Brown. N.B. Please note that financial projections must not be included within the 10-minute presentation, but can be covered in the break-out sessions.
Audience: Over 320 members consisting of individual investors, VCs, corporate investors and professional advisors with access to high net worth individuals.
Performance: GEIF has a proven track record of successful introductions between investors and high-growth businesses. Over 230 companies have presented to GEIF angels since its formation and of these c. 30% have been successful in sourcing funding – amounting to a total direct investment by GEIF members and GEIF Ventures of c: £8.5m.
Learn more about them: http://www.geif.co.uk
As a guide, you should look to cover the following during your 10-minute presentation:
· Company location & origins – founded when and by whom
· Profile of business and background to the business opportunity
· Business objectives and the USP of the investment proposal
· Assets of the business including IPR, licenses, etc.
· Business risks
· Competitive positioning and how the company has sustainable competitive advantage
· Brief summary of management team involved in the company
· Markets and access to markets
· The competition
· Profile of customers and analysis of main customers
· Past trading performance
· Capital structure and funding to date
· Funding requirement and details of where the funds will be spent
· Exit options
They will help you get funds from either their high net worth angel group or their fund or more likely a mix of both. They are better placed to raise larger amounts of funding than most of the other agents in this area (from £1M+) and also charge on a more sensible basis than many others. In my view, having worked with many of the UK’s ‘funding agents’, these are the best in terms of speed, professionalism and cost of money.
They describe themselves as a venture capital firm focusing on early-stage investments. I would agree having met most of the team that they act more like a VC in that they are professional and thorough but they will actually look at a broad base of early stage investments that most European VC’s would not, so they are an excellent alternative.
- 2% deal fee. 1.5% annual monitoring.
- They would require a board seat, the right to veto the chairman and the right to an observer.
- They have the usual VC type terms and controls
They have a major advantage over most other funding agents in that they will guarantee the ‘raise’ once they have agreed heads of terms with you. This means they act much like a VC in ensuring you get all the funds you agree after signing unlike the others where there is no such guarantee
“Generally we carry out the majority of diligence ourselves, in particular market and commercial due diligence. We would outsource some technical due diligence to a third party. In addition our lawyers would carry out limited legal due diligence (including advice on your patent filings). We will need to do some financial due diligence but depends on what information you have available. We would also look to take extensive references.”
In addition to funding their experienced team offers operational, financial and strategic advice as well as high level introductions to potential partners and customers. I think via it’s high quality angel group they can also pull off their claims to offer value added services likes those below:
The MMC Syndicate have a wide range of backgrounds, from management consultants to entrepreneurs; board directors of large corporates to City financiers. Their experience, knowledge and contacts is brought to bear advising the portfolio companies and opening doors to new business opportunities. MMC Syndicate members are often available to work with companies to maximise the benefits of this unique resource.
Securing later stage funding
As they succeed and grow, some businesses will require further rounds of finance. We help them prepare for subsequent capital raisings, introduce later stage funders, as appropriate, and work with the management team in negotiating terms. We use our knowledge of the Venture Capital market in seeking to ensure that the new investor is aligned both with management and existing shareholders.
Maximising value on exit
The interests of the management team and MMC are aligned on exit – realising the maximum value of the business for everyone. MMC’s involvement ensures that the development of the business is focused on achieving this goal at the most advantageous time. The MMC team has considerable experience in corporate finance which we make available to each company to ensure that we all achieve optimal terms on exit.
MMC Investment Criteria
|Stage||Early stage UK companies where we are typically the first institutional investor.|
|Sector||Most sectors will be considered. In our view, all early stage businesses face similar issues and so our expertise is relevant across a broad range of sectors.|
|Market||A rapidly growing market to facilitate early commercial traction|
|Management||Experience in the relevant sector at a senior level is key.|
|Amount||Typically between £500,000 and £3.0 million in the first funding round with the expectation that we may need to follow our money in a second round.|
|Funding Profile||We will only invest in businesses where we, from our own resources, can fund the business to reach break-even to ensure a strong negotiating position with subsequent investors|
The funding process:
You send in your business plan via email and they pre-screen your opportunity. They prefer initially to receive a six to eight page executive summary. This should include details of the management team’s experience.
It’s likely that one of the team will contact you for an early discussion before they get you in to present your plan in more detail. It’s important you are at the right stage and they tend to prefer working with companies that need their first major round of financing and one that will be large enough to get to cash flow break even and/or profitability.
The process for pitching them is straightforward as they are a small team based in London, you can visit with them and the team will quickly let you know if you are suitable for them and their investor base.
It will be an advantage to be an EIS compatible investment.
I enjoyed working with and meeting most of their team. They have a broad mix of skills and backgrounds. They are a professional, friendly and skilled bunch of people that seem very capable of raising the funds and assisting companies meet their goals.
Endeavour Ventures are a fund raising “agent”, they are fronted by Bill Cunningham and are a professional group that hand selects potential investments to present to their network of investors via their regular investment memoranda.
The principals are an experienced team of venture capitalists, led by a former Chairman of the British Venture Capital Association, Richard Hargreaves.
You need to be aware these type of outfits will not guarantee any raise, this means that while they take a risk on trying to get funds for you they also cannot guarantee their investors will like your offering – this is a risk for both parties because they may not get you all the funds you need and they will lock you into an agreement that prevents funds coming from other areas until after the lock in period (usually 10 weeks+).
You will need to satisfy their team that you are at the right stage, in the right market and have the right valuation before they will consider you for one of their investment letters to investors.
There are no set criteria that make a company attractive to Endeavour Ventures as a proposition that they will put to their clients. They seek to identify companies from a broad range of sectors that are taking in revenues, have a protectable position of some sort, and – above all – have a management team that has the drive and skills to take the company where it deserves to go.
As a guide they look for the usual characteristics:
Professional and experienced management
A clear market need that the product or the service is addressing
A significantly large or fast growing market
Barriers to entry (often including IPR)
Clear channels for distribution to their market
Strong competitive position in relation to other offerings in their market
Strong pipeline of (potential) customers
It will be an advantage to be an EIS compatible investment.
Their process is as follows:
You send in your business plan via email and they pre-screen your opportunity. The Executive Directors of Endeavour Ventures make decisions as a team. Good opportunities are fast tracked and presented to Endeavour Ventures’ clients, i.e. its affiliated Independent Investors.
They have over 100 HNIs who regularly invest in presented opportunities along with some friendly funds.
The investment process consists of the following steps:
- The executives screen opportunities and makes recommendations
- Endeavour Ventures’ team agrees to go forward and develops a 10 page summary of your plan
- The plan is mailed and followed up by Endeavour Ventures and meetings with HNIs are arranged as required
- Endeavour Ventures executives complete the deal on behalf of the Independent Investors
This end of the market is slightly more expensive than raising larger amounts as it entails the same amount of time and effort but is a proportionately smaller sum that has to bear the cost.
Unusually they take 5% cash and 5% in shares at the price of the round on money raised i.e they take the funds from their investors and re-invest it with you in place of things like warrants that are more usual.
They usually have the right to appoint a Non Executive director to the board or charge a monitoring fee.
On the plus side they tend to come in earlier than VCTs and under less onerous conditionality. They have less rigid time frames for exits as they are not investing from a fund that has a modelled life cycle with consequent returns to achieve.
This costs are not unusual for this type of outfit and for the effort they put into due diligence is expensive but reasonable compared to other groups that wish to charge an up front fee as they are totally contingent on a success fee.
I found working with the team useful and interesting, they are professional (mostly having experience of putting deals together working for funds) but they are not technical and are highly focused on viable companies based on their ‘numbers’ and growth story rather than IP or technology.
Endeavour Ventures are most successful in raising in the range of £250-750K of equity funding. They are also good at helping with follow on funding from the same investors if the original investment goes well. They are happy to syndicate with others to make up a larger round too.