Fundraising Archives - Small Business Insider

The new approach to business fundraising

Posted on August 7, 2019 Written by Administrator

When you need to raise funds for business growth have you ever considered that you may be reducing your chances of success by using a model where time is limited arbitrarily?

Time is needed to raise capital and growth businesses are now realising the benefits of Always-on Fundraising, in which companies leave themselves open for investment 365 days a year.

An open funding round provides an opportunity to capitalise on any unexpected successes, gives the entrepreneur the best chance of finding their perfect investor(s) and with an investor relations mindset being a constant, follow-on funding. As the days of traditional, time-limited funding round are numbered let’s look at what you need to do to make the ‘always on’ model work for you and your business

Always on Fundraising – What needs to be done?

How does ‘Always on’ work in practical terms? While the concept is radically different some of the early steps will have a sense of familiarity, but you are looking at them through a different lens. Here are five key areas of activity:

What is your investment opportunity?

You need to start by defining your investment opportunity which includes deal structure, valuation, share price and your minimum and maximum investment levels.

Even though you’re ‘Always on’, you must have clearly defined investment levels. This benefits all parties. Your minimum investment level protects investors by ensuring that you have a significant cashflow runway to execute on your plans and projections while the maximum level dictates the total number of shares you are willing to sell at that price, protecting the shareholders from dilution.

Get the right tools in place

You need an FCA-regulated environment in order to promote your investment opportunity, accept pledges and draw investment. The new breed of White-label platforms like Envestry for Scale-ups, provide off-the-shelf functionality to allow companies to create a branded fundraising portal that easily links to their current site. With FCA-coverage built-in, companies can focus on the hard work of attracting investment rather than regulatory fine print.

Promote, promote and promote

With your fundraising site up and running, it’s time to promote your investment opportunity. Before you do anything, think about the investor journey by type. For example, personal connections who may be new to investing will need more guidance as they go through the process than experienced investors. To accommodate those new to investing, how-to guides, investment glossaries and frequently asked questions are imperative. Whereas, your communications to experienced investors can focus on the why instead of the what.

Have a first close

Once you hit your minimum investment level, you can do a first close and draw down the pledges, while keeping your round open. This allows you to start fuelling your growth while continuing to attract investment to your maximum level. Up until you reach your maximum you can continue to draw down funds at significant intervals as they come in.

Close a round; open the next

While the name ‘Always on’ might imply one continuous round, the best way of using this approach is via a series of back to back rounds (tranches). As a growing business you will want to change your valuation and share price to reflect the progress you have made. It is worth noting that on rare occasions businesses may also reduce share price, known as a ‘down round’.

So, when is the best time to close one round and open another one? Clearly, once maximum investment level has been reached, the round will have to be closed. Beyond that, anything significant which justifies an increase in valuation, such as a securing a large new contract, reaching a customer milestone or securing regulatory approval on a product, should prompt you to close the round and open a new round at a higher share price.

It makes a lot of sense for businesses to use the Always on Model particularly if they are generally raising funds every six to eighteen months. In future I expect it to be the norm for all companies from seed through to sale to have a section of their website devoted to ‘investor relations’. A section which should attract interest from both loyal and new investors.

ABOUT THE AUTHOR

Scott Haughton is COO of Envestors, a fintech company that connects investors and scale-up companies. With its fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year.

Envestry has raised £100m+ for over 200 companies through its own private investor network.

Founded in 2004, Envestors is regulated by the FCA and has offices in the UK, the Channel Islands, the UAE and strategic partners across China.

Web: https://www.envestors.co.uk/

LinkedIn: https://www.linkedin.com/company/envestors-llp/

Twitter: @EnvestorsLondon

Facebook: https://www.facebook.com/pg/envestorslondon/posts/

Is an ICO the right fundraising route for your business?

Posted on July 17, 2018 Written by Administrator

Unless you’ve been hiding under a rock, you’ve probably heard about cryptocurrencies. The meteoric (and overinflated) rise of Bitcoin has firmly planted the disruptive technology in the minds of everyday consumers. And as a result, many companies looking to raise money for their business have probably asked themselves whether they should be running an ‘Initial Coin Offering’, or ICO for short.

So, what exactly is an ICO and is it a good way to raise money for your business?

An ICO is a way of raising funds that directly converts fiat currencies or other cryptocurrencies into a new token that you’ve created for your platform. There are two types of ICO: Utility Tokens and Security Tokens.

Utility Tokens

A utility token is one that exists simply to perform a useful task on your platform, akin to buying a painting to adorn an office wall (also think cars, stamps, jewellery or labour). In this instance a platform user won’t simply buy the tokens and sit on them (like a more traditional equity investment) – they will use them as part of their experience of your platform.

Security Tokens

These exist purely for speculators who hope to see a return on their investment, which is like someone buying an artwork from an artist because they’re betting on the value increasing (also think oil trading, rare stamps, precious metals or buying shares).

Obviously, there are grey areas – the painting on the office wall bought to beautify the space can increase in value if the artist suddenly became popular. Equally, the art bought for speculation was still originally created to be admired, interpreted and enjoyed, so the owner can argue that it has a function or utility. In other words, the ‘art token’ could be seen as both ‘utility’ and ‘security’. This is important to understand as the regulations surrounding each are different. So, whether you’re looking to build something that capitalises on the revolutionary factors of blockchain to improve the world, or building something that investors are expecting to rise in value simply by existing, I suggest you get a lawyer and professional help to ensure you remain compliant to your local financial regulations.

Why might I choose a utility token?

Based on existing regulations, an ICO is best suited for a company that has a clear utility need for blockchain. This list is by no means exhaustive, but these are the main reasons why you might need a utility token to support your technology:

You require complete transparency in the way you operate (i.e. a charity / a financial institution / a political institution / someone who handles multiple payments or acts as an intermediary)
You are an organisation that creates or requires regular contracts between two parties where the terms are incredibly clear, and you only want the transaction to take place once the terms have been met (aka a smart contract)
You have many digital assets and you want to give them real world, tangible properties, or so you know without doubt which one is the original

Is it right for me?

If you have not immediately recognised one of the attributes listed above in your own technology – then an ICO is probably not right for you. Even if you do think your solution has a need for underlying blockchain technology, it still might not mean you need to complete an ICO. There are many disadvantages to running an ICO over a traditional fundraise, not least because of the cost and regulatory concerns involved.

Of course, there are advantages as well. It’s a highly speculative and risky market for investors, but there’s a wild west, winner-takes-all feel to it at the moment. We’re in the midst of a dot.com 2.0 bubble and the next Googles and Amazons are likely hidden amongst the companies coming through. And there are a lot of investors who made a tonne of money in the cryptocurrency inflation now looking to diversify their rewards across a multitude of emerging blockchain innovations. So, even with the recent drop in market value, there’s still a lot of liquidity in the market. Some ICOs are raking-in huge sums of investment as a result.

In my experience, the founders who have the tenacity to succeed and an all-or-nothing mentality might want to consider an ICO. It will eat months of your life where you think of nothing but your venture for 20 hours a day, and will probably cause you to use up all your savings in the process. You also probably want to genuinely change the world and make transactions and interactions between companies and businesses more transparent.

If you fear this new world or are wary of risking losing anything, then a traditional funding raise is probably better for you.

ABOUT THE AUTHOR

John Auckland is a crowdfunding specialist and founder of TribeFirst, a global crowdfunding communications agency that has helped raise in excess of £5m for over 30 companies on platforms such as Crowdcube, Seedrs, Indiegogo and Kickstarter – with a greater than 85% success rate. TribeFirst is the world’s first dedicated marketing communications agency to support equity crowdfunding campaigns and the first in the UK to provide PR and Marketing campaigns on a mainly risk/reward basis. John is also Virgin StartUp’s crowdfunding trainer and consultant, helping them to run branded workshops, webinars and programmes on crowdfunding. John is passionate about working with start-ups and sees crowdfunding as more than just raising funds; it’s an opportunity to build a loyal tribe of lifelong customers.

See: http://www.tribefirst.co.uk

Twitter: @Tribe1st

Invoice finance – a brief guide

The recent annual report by the British Business Bank on Small Business Finance Markets revealed that asset finance for small and medium-sized businesses (SMEs) grew by 3% during the period 2018/2019. Indeed, in 2017 alone some £32 billion was advanced to British businesses in the form of asset finance. But what exactly is asset finance? […]

Insurance for freelancers FAQs

Freelancing is probably one of the fastest-growing sectors of the UK economy says the Association of Independent Professionals and the Self-Employed (IPSE). As the ranks of these freelancers are swelling, their need for appropriate insurance is thrown into the spotlight so, here are some of the most frequently asked questions about insurance for freelancers. I’m […]

What is crowdfunding?

Small and medium-sized enterprises (SMEs) in particular often find it difficult to raise the working capital they need. The problems are compounded by the general reluctance of traditional banks to advance such business loans. Crowdfunding has helped to fill that vacuum. Instead of asking one main lender to advance the required funds, crowdfunding offers a […]