Slides from the Crowdfunding / Crowdcube breakfast event held on 4th Feb 2015 at Francis Clark offices, Truro.

1. CROWDFUNDING /
CROWDCUBE
BREAKFAST
4 February 2015

2. www.francisclark.co.uk
Chairman’s welcome
Richard Wadman
Corporate Finance, Director

3. www.francisclark.co.uk
Speakers
• Richard Wadman, Corporate Finance Director, Francis Clark
• Richard Warren, Investment Analyst, Crowdcube
• Dominic Ring, Corporate and Commercial Solicitor, Ashfords

4. www.francisclark.co.uk
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

5. www.francisclark.co.uk
Francis Clark – who are we?
‘Top 50
Corporate
Finance Team
of the Year’ at
the 2014
British
Accountancy
Awards.

6. Crowdsourcing
equity/
Crowdcube
Richard Wadman – Corporate
Finance Director

7. www.francisclark.co.uk
Routes to Equity
• “Friends, Families and Fools”
Include related businesses?
• Networks e.g., SWAIN, OXIN
• Conduits e.g., UEC Enterprises, GAIN?
• Virtual Networks e.g., Crowdcube
• Venture capitalists and Private Equity e.g., Piper
Private Equity, Altitude Partners LLP or Longwall
Venture Partners LLP

8. www.francisclark.co.uk
Crowdsourcing
Three broad categories (for business)
• Equity e.g.,
• Crowdcube - http://www.crowdcube.com/
• BrewDog - http://www.brewdog.com/equityforpunks
• Debt e.g., Thin Cats - http://www.thincats.com/ Funding Circle
https://www.fundingcircle.com/ or
• ‘Peer to Peer’ e.g., http://www.folk-folk.com/
• Rewards e.g., Kickstarter - http://www.kickstarter.com/ or
Crowdfunder http://www.crowdfunder.co.uk/
http://www.francisclark.co.uk/news-views/blog/crowd-funding-born-in-the-usa/
And many more..

9. www.francisclark.co.uk
Crowdcube..
Crowdcube – not just equity..
“Eden Project crowdfunding raises £1.5m in 20
hours - The charity sold £500 bonds in 20 hours in
return for 6% interest a year”

10. Richard Warren
Investment Analyst
@rich_crowdcube

11.  Crowdcube is the world’s first and leading investment crowdfunding
platform giving entrepreneurs a new way to raise investment
 Fully authorised and regulated by the Financial Conduct Authority
What is Crowdcube?

14. Case studies

17. Success so far
£55 millionfunded so far…
£500,000
largest single investment
+125,000
members
190
£2 millionbiggest deal
£3,000
average investment
Successfully
funded deals
£300,000
average deal
Stage of Growth
By Category

18. Number of Users – 2011 - 2014
0
20,000
40,000
60,000
80,000
100,000
120,000
2011,1
2011,4
2011,7
2011,10
2011,13
2011,16
2011,19
2011,22
2011,25
2011,28
2011,31
2011,34
2011,37
2011,40
2011,43
2011,46
2011,49
2011,52
2012,3
2012,6
2012,9
2012,12
2012,15
2012,18
2012,21
2012,24
2012,27
2012,30
2012,33
2012,36
2012,39
2012,42
2012,45
2012,48
2012,51
2013,2
2013,5
2013,8
2013,11
2013,14
2013,17
2013,20
2013,23
2013,26
2013,29
2013,32
2013,35
2013,38
2013,41
2013,44
2013,47
2013,50
2014,1
2014,4
2014,7
2014,10
2014,13
2014,16
2014,19
2014,22
2014,25
2014,28
2014,31
2014,34
2014,37
2014,40
2014,43
2014,46
2014,49
Users on Crowdcube

19. What do our investors look for in a business?
Research undertaken by LSE & Bath University, 2014.

20. Our results show that the quality of the founders is the most
important factor that investors look for in a venture.
 Demonstrated leadership and business ability
 Relevant industry experience
 Previous start up or entrepreneurial experience
 Can the team execute the plans & deliver an exit (££££)?
The Founder

21. Product or idea
Product factors ranked second aligning with the
work of Muzyka et al. (1996) and Riquelme &
Rickards (1992), who both found this was the
case for venture capitalists.
Demonstrated market acceptance / traction
Product is proprietary or can otherwise be
protected
Product developed to point of functioning
prototype

22. Market
Market factors ranked third in our findings, it is
important to demonstrate that the problem you’re
solving is actually a problem worth solving!
Reduced threat of competition / barriers to entry
may be difficult for competition
The target market has a significant growth rate,
it is certainly not a declining market
Product or idea has demonstrated market
acceptance (customers, sales, testimonials)

23. Financial calibre and exit strategy
The financial calibre is naturally vital to any
venture however the team, idea & market are
more important as ultimately these aspects
sustain the financial calibre of a business.
Investors want a clear exit strategy for their
investment to be made liquid
Ideally within 5 years
Ideally at a 10x return

24. The proposed exit strategy is important and its
vital that you include relevant examples were
possible.
Most popular:
 Company share buy back
 Company sale
 IPO
 A series of dividend payments
Financial calibre and exit strategy

26. Thanks!
Richard Warrem
Investment Analyst
@rich_crowdcube

27. CROWDFUNDING
Dominic Ring
Ashfords LLP
4 February 2015

28. Crowdfunding | 4 February 2015 28
David Heard
Partner
d.heard@ashfords.co.uk
01752 526004
Key Contacts
Dominic Ring
Solicitor
d.ring@ashfords.co.uk
01752 526030

29. Crowdfunding | 4 February 2015 29
1. Crowdcube & Ashfords
• Ashfords integral in pre-authorisation model and obtaining FCA
authorisation on 1 February 2013;
• Legal advisor to Crowdcube – corporate and regulatory;
• Recommended legal advisors for investee companies that
successfully pitch through Crowdcube;
• Advised over 100 companies;
• Advise on start ups, growth companies and later stage funding.

30. Crowdfunding | 4 February 2015 30
2. Legal Steps – Pre Pitch
& Documentation
• Content of pitch must be fair, clear and not misleading and give details of
share rights and constitutional documents;
• Prior to pitching:
– Check existing constitutional documents;
– Check consents required.
• Waive pre-emption on issue from all existing shareholders;
• Board resolution to issue the shares;
• Shareholder resolution to adopt new Articles of Association, sub-divide the
nominal value of the shares and grant directors with authority to allot new
shares.

31. Crowdfunding | 4 February 2015 31
3. Legal Steps – Articles
• Articles of Association:
– Crowdcube has template Articles of Association;
– Drafted by Ashfords;
– Specifically designed for crowdfunding;
– Include two classes of shares (A: voting, and B: non-voting) – A shares
for significant investors;
– Pre-emption on issue and pre emption on transfer – but only for A
Shareholders;
– Drag along, tag along, board representation and electronic
communication provisions.
– Where investee company has its own Articles – must work for
crowdfunding i.e. equal dividend rights, no restrictive covenants, no
subordinated rights, equal rights on an exit, drag along etc.

32. Crowdfunding | 4 February 2015 32
4. Legal Steps –
Shareholders’ Agreement
• Shareholders’ Agreements:
– Normal for VC/Private Equity investment – but not recommended for
crowdfunding due to practical implications of obtaining signatures, and
issue of unanimity for amendments with significant number of
shareholders;
– Existing shareholders’ agreements usually need amending or varying –
likely with unanimous consent – pre-pitch consideration;
– Can be drafted to bind certain groups of shareholders only e.g.
founders if want to retain in place due to investor concerns or keep
matters private;
– Be careful of provisions restricting issues/transfers to persons signing
a deed of adherence.

33. Crowdfunding | 4 February 2015 33
5. Other Issues
• Share numbers - £10 investments, valuations, rounding/share price.
• EIS/SEIS – get tax advice!!!
• Employment Related Securities
• Share Option Schemes – fully diluted basis calculations
• Ongoing compliance – accounts and filings
• Corporate Secretarial

34. Investment
ready… for
equity (from
the crowd)
Richard Wadman – Corporate
Finance Director

35. www.francisclark.co.uk
Investment ready

36. www.francisclark.co.uk
The Readiness Process
• When, why and what funding is needed
• Communicating the business proposition -
Business plan and projections
• Viable plan and credible management
• Building the relationship

37. www.francisclark.co.uk
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
The opportunity and how you
will exploit it. Why you will
succeed.
Financial implications
and finance required.

38. www.francisclark.co.uk
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

39. www.francisclark.co.uk
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?

40. www.francisclark.co.uk
Requirements: 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

41. www.francisclark.co.uk
Why are SEIS and EIS important?
Important to the Investor
• De-risks an investment
• Improves ROI
Important to you
• As above
“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.”

42. www.francisclark.co.uk
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

43. www.francisclark.co.uk
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

44. www.francisclark.co.uk
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

45. www.francisclark.co.uk
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

46. www.francisclark.co.uk
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

47. www.francisclark.co.uk
Investor Ready - Conclusions
• Appropriate funding /
understand the funder
• Business Case
• Plan B?
• Know the ‘deal breakers’ – due
diligence
• Build in extra time

48. www.francisclark.co.uk
Business support
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
Get Set for Growth

49. www.francisclark.co.uk
Upcoming events
• “Equity for SMEs – An investors perspective” on 11 February
2015
• “Secured non-bank lending” on 11 March 2015
• Finance in South West (Exeter Racecourse) – 25 February 2015
• Finance in Cornwall (Newquay Cinema) – 12 May 2015

50. www.francisclark.co.uk
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