Slides from the Equity for SMEs event held on 22nd October 2014 at Francis Clark offices, Truro. Joint event with Francis Clark, Stephens Scown and Get Set for Growth.

1. Finance in Cornwall 2014 follow up
events
22 October 2014
EQUITY FOR SMEs

2. Equity for SMEs:
introduction
(including some housekeeping..)
Richard Wadman – Corporate
Finance Director

3. Administration
Admin
Timetable
Questions at the end and over breakfast
Interaction – Compulsory
Slides – See pack
www.francisclark.co.uk

4. Speakers and topics
• Focus on practicalities for SME
Speaker Topics being covered
Richard Wadman Corporate Finance Director,
www.francisclark.co.uk
Francis Clark
Sources of equity, including 3F’s and “the
crowd”
Investor ready
SEIS/ EIS
Christian Wilson Partner, Stephens Scown What is “equity”
Legal documentation
John Acornley Get Set for Growth Business Angels
Network of Investors looking to invest in
Cornish businesses

5. Equity... “under-used”
“It is worth noting that external equity funding is significantly under-used by
smaller UK businesses: only 3% of small businesses ’use equity finance,
whereas 55 per cent use credit cards. Equity, along with alternative channels
for debt capital, can potentially benefit these businesses in the early stages of
their development. These smaller businesses often need significant capital
injections to achieve their potential and may often be deemed inappropriate
for bank finance alone due to their innovative nature. Whilst equity is not the
subject of this review, it is important to create a framework to stimulate
investor appetite for equity and lower the cost of raising such capital.” –
Boosting Finance Options for Business, March 2012
• CBI made similar comments re under-utilisation of equity
• http://www.francisclark.co.uk/news-views/blog/cbi-in-favour-of-increasing-
www.francisclark.co.uk
equity-funding-for-and-into-smes/

6. 14 March 2011

7. 14 March 2011
What is Equity?
o the provision of equity capital
o by financial investors
o over the medium or long term
o to non-quoted companies
o with high growth potential

8. 14 March 2011
What does equity finance mean?
Founders
Company
Investor
£ Shares
Company
Founders Investor
Company

9. 14 March 2011
Is Equity Right for You?
• Are you prepared to take on the responsibility of being an
entrepreneur?
• Are you prepared to give up part of your company’s capital
to a private investor?
• Does your business operate in a growth market?
• Are your company’s development prospects sufficiently
ambitious?
• Is your team prepared to follow you? Does it have the
necessary experience?

10. 14 March 2011
Is Equity Right for You?
• Does your company have a certain technological or
competitive advantage that can be developed or
exploited?
• Are you prepared to share certain strategic decisions with
shareholders outside your “inner circle”?
• Is there a realistic exit strategy for all shareholders?

11. 14 March 2011
What are the options?
Friends / Family – may be willing to help...
Business Angels – typically £10,000 - £2,000,000 - early
stages of development or established companies looking
to expand

12. 14 March 2011
What are the options?
Venture Capital – look for businesses with USPs /
competitive advantage
Private Equity Funds – look to invest in established
companies with high growth potential
Crowd Funding – a means of raising capital by appealing to a
large group of people for small contributions

13. Equity for
SMEs: sources
and investment
readiness
Richard Wadman – Corporate
Finance Director

14. Sources of Equity for the SME
• “Friends, Families and Fools”
Include related businesses?
• Networks e.g., SWAIN, OXIN (Business Angels)
• Conduits e.g., UEC Enterprises, GAIN? Get Set for
Growth?
• Virtual Networks e.g., Crowdcube
• Venture capitalists and Private Equity e.g., Piper
Private Equity, Altitude Partners LLP or Business
Growth Fund
• The Public (direct) – BrewDog “equity for punks”
£1m in 24 hours
www.francisclark.co.uk

15. Crowdcube: The equity solution?

16. Crowdcube: Success so far
£37 million
funded so far…
£220,000
average deal
£1.9 million
biggest deal
£250,000
largest single investment
+90,000
members
145+
£2,600
average investment
Successfully
funded deals
Stage of Growth
By Category

17. Crowdcube: Case studies

18. Investment ready
www.francisclark.co.uk

19. The Readiness Process
• When, why and what funding is needed
• Communicating the business proposition -
Business plan and projections
• Viable plan and credible management
• Compliance (VAT and IPR etc)
• Identifying and Building the relationships
www.francisclark.co.uk

20. Investment Readiness: The Business Plan – A Guide
• Executive summary
• The Business –history and present: Where you are now, including
historic financials, ownership, awards, accreditations etc.
• The market and the opportunity
• Future strategy/ plans/ risks
• Operations (changes + practicalities)
• Financial – summary of projections
• Finance required
• The team
• Environment, Equal Opp and Local Economy etc - Depending on the
type of finance sought may have to consider these issues
www.francisclark.co.uk
The opportunity and how you
will exploit it. Why you will
succeed.
Financial implications
and finance required.

21. Investment Readiness: Projections – “How to”
• Excel and/ or Sage Winforecast (other programmes)
• Approach
• Annual P&L to Monthly P&L
• Cash flow assumptions
• Capital expenditure (profile)
• Other non-P&L items e.g., loans
• Opening balances
www.francisclark.co.uk

22. Investment ready – general housekeeping
• Compliance and Legal
- Licences / contracts/ legal title?
- IPR ownership in the company?
- Statutory Accounts/management accounts
- VAT, PAYE/NI, Books and records in order?
www.francisclark.co.uk

23. Investor readiness: Equity
• Exit route and returns to the investor
• Investors expertise vs. loss of
independence?
• Be prepared to discuss valuation
• Emotional!
• Be aware of FSMA regulations
• SEIS/ EIS
www.francisclark.co.uk

24. Investment readiness (equity):
Why are SEIS and EIS important?
Important to the Investor
• De-risks an investment
• Improves ROI
Important to you
• As above
www.francisclark.co.uk
“Businesses raised £1,017
million through EIS in the
year to 31 March 2012, up
from £545 million raised in
2010-11”
“More than 2,000
companies have raised
around £2 billion in
equity cash from
investors, according to
HM Revenue &
Customs (HMRC),
which monitors SEIS.”

25. Enterprise Investment Scheme
• Rate of income tax relief – 30% up to maximum per investor of
£1m per year
• Capital Gains tax relief – Hold Over relief. Exemption for gains
on EIS investment if income tax claimed
• Mandatory investment period – 3 years
• Qualifying investment
• Cash for Ordinary shares in unlisted company
• < 250 employees
• Net Assets < £15 million
• Carrying out permitted activity
• Not controlled by another company
www.francisclark.co.uk

26. Seed Enterprise Investment Scheme
• Rate of income tax relief – 50% up to maximum per investor of
£100k per year
• Capital Gains tax relief – 50% relief on capital gains realised on
asset disposals used to make SEIS investment. Exemption for
gains on SEIS investment if tax relief income tax relief claimed
• Mandatory investment period – 3 years
• Qualifying investment
• Cash for ordinary shares in unlisted company
• < 25 employees
• Net Assets < £200k
• Carrying out permitted activity
• Not controlled by another company
• Trade < 2 years old
www.francisclark.co.uk

27. SEIS/ EIS Qualifying activities
Trade carried on on a commercial basis with a view to profit
Not permitted activities include:
• Dealing in land, shares and other financial instruments
• Banking and other financial activities
• Dealing in goods, other than ordinary retail or wholesale activity
• Letting or leasing assets on hire
• Legal and accountancy services
www.francisclark.co.uk

28. SEIS/ EIS: Practicalities – pre investment
Get HMRC clearance re “permitted activities”
Non-employees (Directors deemed not be employees)
State aid – interaction with grants
Forms/ paperwork to HMRC within set deadlines
Amount raised - limits
www.francisclark.co.uk

29. SEIS/ EIS: Practicalities – post investment
Maintain qualifying company status for 3 years
• Holding Company
• Control of all subsidiaries
• Permitted activity
Investor returns and control – care
www.francisclark.co.uk

30. Investor Ready - Conclusions
• Appropriate funding / understand
the funder and their requirements
• Business Case:
• Funding to fit with and presentation of
• Should override emotions?
• Know the ‘deal breakers’ / Plan B?
• Build in extra time
www.francisclark.co.uk

31. Business support
Get Set for Growth
Growth Accelerator
- Mentoring / 7 days coaching
- Companies with 1-4 employees – £600 plus £700 VAT
- Companies with 5-49 employees – £1500 plus £700 VAT
- Companies with 50-250 – employees - £3000 plus £700 VAT
- Leadership (subsidised assistance with projections for example, £2k per member of management
team)
Growth vouchers
- 50% subsidy up to £2k for advice on:
- Managing cashflow, late payments and negotiating finance
- Developing skills and taking on staff
- Improving Leadership and Management
- Marketing, attracting and keeping customers
- Making the most of digital technology
www.francisclark.co.uk

32. 14 March 2011

33. 14 March 2011
How does it work?
Think of Dragons Den as being the first of three critical
phases:
Phase 1: “the Den” – heads of terms agreed between the
founders and the investor
Phase 2: legal and financial due diligence
Phase 3: completion – legal documents signed off, cash paid
into the company and shares issued to the investor.

34. 14 March 2011
Legal Documents?
The Investment Agreement:
o Agrees funding levels and drawdown
o Warranties and more warranties!
o Company owns IPR
o No litigation
o No liabilities

35. 14 March 2011
Legal Documents?
The Investment Agreement:
o Combines Shareholders agreement
o Reserved Powers
o Compulsory Sale
o Potential Loss of original owner control

36. 14 March 2011
Legal Documents?
The Articles of Association:
o Share rights
o Share classes?
o Binding on all shareholders

37. 14 March 2011
What does private equity bring to you?
– Long-term capital, solidly underpinning your company’s
growth;
– increased visibility with bankers, suppliers and clients;
– a partnership, sharing the risks and the rewards;
– an investment fixed within the framework of a
negotiated contract;

38. 14 March 2011
What does private equity bring to you?
– the adoption of high-performance management
standards;
– strategic and operational support along with financial
advice in times of crisis;
– assistance with subsequent financing operations;
– alliances due to the investor’s network of contacts and
portfolio of investments;
– a partial or total exit strategy.

39. 14 March 2011
The information in this presentation is intended to be general
information only and should not be interpreted as legal advice.
English law is subject to change so whilst Stephens Scown LLP
seeks to ensure the information contained in this presentation
is up to date and accurate, the law can change quickly and no
guarantee is made as to its accuracy which means the
information should not be relied upon. Presentation slides
should not be viewed as an alternative to professional advice
and Stephens Scown LLP does not accept liability for any
action taken or not taken as a result of this information.

40. 14 March 2011

41. 41

42. 42
EQUITY INVESTMENT
John Acornley
Business Equity Finance Advisor
Get Set For Growth
john.acornley@getsetforgrowth.com
22nd October 2014

43. 43
EQUITY – MAIN TYPES
• Angel Investment
• Private Equity/Venture Capital
• Equity crowdfunding
• We are building a network of
equity investors who wish to
invest in Cornish businesses

44. 44
ANGEL INVESTMENT
• Individual or small group of individuals
• Looking to invest money
• May or may not want a Board seat
• Want a return from their investment

45. 45
PRIVATE EQUITY/VENTURE
CAPITAL
• Firm set up to invest equity into businesses
• Can usually invest larger amounts of money
• Will probably want a Board seat
• Have resources to help growth

46. WHEN SHOULD EQUITY BE
CONSIDERED
• Need/want some money and external help (Angel)
• Can’t deliver the business plan without the money and
46
the external help (Private Equity)

47. WHEN SHOULD EQUITY BE
CONSIDERED (ANGEL)
EXAMPLE – HIGH GROWTH - AROMA CHEMICALS
• Angel invests £30k for 3% of business
• Business initially valued at £1m
• Angel takes Board seat (Chair)
• Business grows and is sold for £20m four years later
47

48. WHEN SHOULD EQUITY BE
CONSIDERED (PRIVATE EQUITY)
EXAMPLE – ACQUISITION & HIGH GROWTH
RAINFORD GROUP PLC (RG)
• RG raises £1m equity for 25% of RG
• RG buys GEC division for £750k cash and £750k deferred
• RG grows combined business and sells five years later for £80m
48

49. 49
WHAT EQUITY
INVESTORS LOOK FOR
• Strong management team
• Credible high growth Business Plan
• Sensible initial valuation
• Exit strategy
• EIS/SEIS approval (for Angel investment)
• Good advisers (corporate finance, tax, legal)

50. Francis Clark – who are we?
• 7 regional offices: Taunton, Exeter, Torquay, Plymouth, Tavistock,
Salisbury and Truro
• UK Top 25 Firm (Accountancy Age 2014)
• 49 Partners and over 390 staff
• Identified in December 2013 by the London Stock Exchange as one of
the ‘1000 Companies to Inspire Britain’
• Largest range of specialists located in the South West
• Awarded ‘Best VAT consultancy’ at the Taxation Awards 2014
• Awarded ‘Tax Award of the Year (non global firm)’ in the British
Accountancy Awards 2012
• Awarded ‘Best Tax Practice in a Regional Firm’ at the Taxation Awards
2012
• Awarded ‘Auditor of the Year – Mid Tier’ at the national Financial
Directors’ Excellence Awards 2011
www.francisclark.co.uk

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