Nail your preparation.
It’s probably taken you a lot of time and hard work to put your perfect pitch together.
Please don’t waste it by jumping the gun and approaching investors too quickly.
You’re much more likely to beat the odds and raise investment quicker when you can show investors your Financial Projections and Business Plan are as solid as your pitch proposal.
Before you even attempt to take your pitch out into the world and raise investment, you must ensure that both you and your investor will be appropriately protected. If you can sweeten your pitch by offering the prospective investor, some added assurances and tax exemptions, even better. That’s the advantage that having EIS or SEIS Advance Assurance can give you.
Why EIS/SEIS Advance Assurances are so attractive to an investor.
When you can show an investor that you’ve got ‘Advance Assurance’, they’ll realise how far you’re thinking ahead and know you’ve already looked for ways to maximise their investment when it pays off or protect them as much as possible if it doesn’t.
What does ‘Advance Assurance’ mean?
It means that, even before you approached the investor, you’ve already received provisional notification from HMRC to say that investing in your business will qualify for the EIS or SEIS schemes.
EIS (Enterprise Investment Scheme)
EIS lets an individual invest up to £1m annually and claim 30% as a tax reduction. They’ll also pay no capital gains tax on any profit the investment accrues. However, your business can only raise £12m in total under EIS, with a £5m maximum in any 12-month period.
SEIS (Seed Enterprise Investment Scheme)
Under SEIS, an individual can invest up to £100k in your business and claim 50% of their investment as a tax break. Just like EIS, they’ll be exempt from paying capital gains tax on any profit their investment makes. However, your business can only raise £150k in total via the Seed Enterprise Investment Scheme.
Angel Investors and High-Net-Worth individuals love the EIS and SEIS schemes because they pay big dividends when their investment is successful and mitigate their loss through tax exemptions if their investment fails. That’s why, so far, those two schemes have persuaded investors to inject more than £20bn into early-stage businesses, and almost 40,000 investors claim income tax relief through the EIS or SEIS schemes every year.
For all those reasons, applying for EIS or SEIS before you approach potential investors makes absolute sense. You’re not just giving them another incentive to invest; you’re also giving them another reason to believe in you.
Get expert legal advice before you even begin the journey of raising investment.
A critical step in closing an investment round is showing an investor you’ve got all your legal documents in place, and you can answer all the complex fine-detail questions they’ll have about how your business is run.
That’s why seeking expert legal advice before you step into the investment ring is often vital.
There will be at least three core legal documents you’ll need, and possibly many more documents depending upon the nature of your idea and the type of investment you’re looking for.
The three core documents are:
When you and your investor have agreed on terms in principle, the term sheet describes the deal’s details and memorialises the mutually beneficial relationship between both parties. It also sets the terms for any subsequent investors.
This document outlines the rights of your investor and the relationship between new and existing shareholders once the investment has been completed. It will also describe what independent decisions you can make without being required to seek shareholder approval.
Articles of Association:
This document operates in tandem with the Shareholders Agreement and describes how specific operational, managerial and administrative tasks will be handled within your company.
We know that the idea of seeking legal advice can sound daunting and expensive, especially in the earliest days of an investment campaign. However, there are companies online that can simplify the process and make it much easier on your pocket. Our friends and partners SeedLegals is one of them, and an online search will uncover several others.
Even though getting your legal documents sorted and applying for the EIS or SEIS schemes might seem less exciting and inspiring than crafting your pitch, these are the nuts and bolts details that can make or break an otherwise perfect pitch. It’s essential to get them right, not only to provide your potential investor with as much extra incentive as possible, but also to make sure that you, your business, and your intellectual property are as legally protected as your investors are.
You’ve worked hard to make your investors believe in your pitch. You should work equally as hard at making them believe in you, too.