Traditionally if you were the owner of an unlisted private company there were limited opportunities for investment from outside third parties. You could apply for a bank loan or increased overdraft, ask a friend or family member or even seek investment from a small private equity provider or business angel. Times are changing for small / unlisted companies. The public have expressed their interest in getting involved with young and growing companies almost from the beginning rather than waiting until they are more firmly established and listed on traditional exchanges.
Crowdfunding is the new buzzword. Its exciting for both companies and potential investors. It allows someone to get involved in a private company if they like the idea and think it has potential. There are now a number of crowdfunding sites out there. The most well known is Kickstarter, this is a US platform which according to their sources raised in the region of £2m in its first month.
Seedrs is great for new investors wanting to dip their toe into the investment market and smaller companies looking for their initial investment. Seedr lets you invest a minimum of £10 and are happy to provide advice and information about the companies on their platform. They charge a fee of 7.5% of the profits made by you. Its up to you to deal with your own tax etc.
This is a really exciting time for young businesses and although the financial climate has put some entrepreneurs off, plenty are succeeding and taking advantage of this new form of investment.
Getting things ready before seeking funding
If you have an idea that you are thinking of solidifying and starting a company its important to think about the structure of the Company before you take investment to ensure that you can retain control even once you have diluted your shareholding. Your articles of association should be drafted in such a way that will allow you to create and issue different classes of shares. A shareholders agreement will also need to be put in place, particularly if you are intending to seek investment in the form of private equity.
Before you start the process of seeking funding sit down with your fellow shareholders and directors and decide amongst you what percentage of your shareholding you would be prepared to give up / dilute and in exchange for how much investment. Are you looking for straight funding or do you also want a mentor or someone that brings experience to the table? You could consider an option to repurchase your shares within a specified time period for a value based for example on a multiple of profit.
You will also need to consider that savvy investors will expect you to demonstrate that you can run a business and have a reasonable set of legal documents, knowledge and procedures to show that you understand the importance of getting the right building blocks in place for your business as well as the right product or service.
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