The decision to move your business to the next level is rarely taken in isolation by a management team. Outside influences often drive that decision, whether it is due to the demands of customers, changes in the market, a reduction in cash flow, competitor activity or shareholder demands. If funds aren't available or borrowing is not possible, then an EIS is the most obvious next step.
The first step in the EIS process is to liaise closely with your accountant and/or lawyer to help you to ensure that you approach the EIS in a practical and legal way (Sapphire can advise on how best to approach this and guide you through the process - see our services page here). Once these administrative arrangements have been put in place the real challenge begins, being the fund raising.
It is important to understand the regulatory framework around the promotion of financial information as there are rules dictating who can and can't see particular types of information. This is primarily aimed at protecting vulnerable investors but will also help to protect the management of the company should something go wrong in the future. It is also worth mentioning that as all qualifying EIS investors will become shareholders, an inappropriate investor may cause problems later on.
In the case of existing companies, the initial source of investment is typically from the current shareholders. This is an opportunity to present a forward vision for them that will be positive and will also allude to a future exit. They will potentially be resistant to any dilution of their shareholding, however if the alternative is the winding up of the company or a missed opportunity to exit then they typically will support the plans. If they are not in a position to invest, they may be well placed to make introductions to others who are. Any company trying to raise money should never underestimate how far and wide these networks can reach.
Professional fund raising partners should also be encouraged and incentivised to bring investors to the table. They have a vested interest to do this as there is potentially a financial reward from both referral fees and the ongoing fees from a larger growing successful company.
The growth of crowdfunding has given us a new set of marketing techniques that should also be considered. There is an assumption that crowdfunding is only applicable for start ups and that your share registry will be flooded with hundreds of small share holders. The reality is that crowdfunding platforms have shown the financial services industry that digital and social media can be used very effectively to both manage and communicate your investment with a much wider and targeted audience. It is very likely that a potential investor based somewhere in the UK or across the world will read your business plan, share your vision and want to invest. If you are relying on a badly drafted information memorandum and local networks, you will most likely miss opportunities. Sapphire can help you promote your EIS through our crowdfunding partner, Crowd Valley and advise on how best to use Twitter, Linkedin and other online tools to tell your story and attract investment. You can dictate the minimum investment levels to control the number of share holders and you will always have final say on whether you accept someone's investment or not.
Post raise as you get on with doing what you needed the funds to do, your crowdfunding platform can be deployed to manage your share holders and if suitable use them for product testing, promotion or the provision of other support.
To find out more about EIS, SEIS or Crowd Funding please get in touch. Sapphire Capital Partners LLP can assist throughout this process. From the fundraising to the share holder management using the technology of our partners at Crowd Valley.