2. Secrets of Successful Fundraising Kathryn Walls, Mills Selig 3 March 2016

3. Equity isn’t for Everyone

4. Secrets of Successful Fundraising Do you know what investors want?  Stake in the business; return on investment; exit route; step in rights. Is your business suitable for investment?  Disruptive business concept; strong management team; clear path to growth. Do you know what you want from your investor?  Just money?  Money; Business contracts; Strategic advice; more?

5. Is it for you?

6. Secrets of Successful Fundraising Are you willing/able to devote time away from your business to find the right investor?  This takes more time than you think!  Investors come in all shapes and sizes. No one size fits all. Are you willing to part with some of the control of your business and its future direction?  Be realistic. The earlier the stage of your business, the larger the stake an investor will want.  Investors will want to have a say in the direction your business takes and will insist on accountability.

7. Investor Assumptions

8. Secrets of Successful Fundraising  Investor will want to exit within 3-5 years.  Investor will want ROI in excess of 30%.  Legal documents will set out ground rules for good governance.  Investor may take control if their investment is at risk.  Legals must facilitate an exit in good or bad times.

9. Step by Step

10. Secrets of Successful Fundraising  Get Investor Ready!  Term Sheet  Due Diligence  The main legal documents: Investment Agreement; Loan Note Instrument; Articles of Association; and Founder Service Agreements.

11. Are you Investor Ready?

12. Secrets of Successful Fundraising  Advisory Team – appoint and engage early in the process.  Suitable business structure.  Strong business plan - know your market.  Management team – able to deliver.

13. Secrets of Successful Fundraising  Good corporate governance IP ownership: NDAs, patents/trademarks; licensing; assignments. Supplier/Customer contracts or terms and conditions. Employee/consultant contracts. Properly kept accounts/tax records.  SEIS/EIS advance assurance

14. Term Sheet The Basics

15. Secrets of Successful Fundraising  Amount to be invested.  Form of investment – convertible loan or equity.  Equity percentage.  Type of equity: Ordinary shares; ‘A’ Ordinary Shares or Preference Shares.  Rights attaching to investor’s shares:  Dividend Rights;  Voting Rights; and  Information Rights.

16. Secrets of Successful Fundraising  Board seat  Issue of new shares: Pre-emption  Transfer of Shares Prohibited transfers; Pre-emption on transfers – investor; all shareholders Permitted transfers; and Drag along/tag-along.

17. Secrets of Successful Fundraising  Costs and Expenses – company will pay investor’s fees.  Exclusivity  Confidentiality  Nature of the agreement – non-binding save for specific terms.

18. Term Sheet The Hot Buttons

19. Secrets of Successful Fundraising  Anti-dilution rights  Restrictive covenants  Lock-in: Founder share price Good leaver/bad leaver  Warranties: Nature and scope Limitations

20. Investment Agreement and Articles of Association

21. Secrets of Successful Fundraising  Govern the relationship between the investor and founders.  Lay ground rules for operation of the business.  Investment Agreement: private document.  Articles of Association: public document.

22. Convertible Loan Note

23. Secrets of Successful Fundraising  Loan that may convert to equity at a later date.  Carries interest (coupon), that is either payable periodically or rolled up and added to total loan.  Details conversion rights of the investor including conversion triggers and conversion price.  Repayment terms if not converted.  Secured or unsecured.

24. What else is there?

25. Secrets of Successful Fundraising  Security Documents  Service Agreements  Deed of Priorities  Share Option Scheme Documentation  SEIS/EIS Approval  Keyman Insurance

26. So what’s the secret?

27. Secrets of Successful Fundraising  Have a great concept, the team to deliver it and the strategy to make it happen.  Understand what investors expect and the process.  Decide if equity investment aligns with your business expectations. If not, look at alternatives.  Start early – get your business into shape from the outset.  Use skills and experience of your advisory team.  Use the term sheet process to ensure you understand what the investor expects. Will be less costly than jumping to investment documents.

28. Secrets of Successful Fundraising  Do investor due diligence – find the right partner.  Understand the terms an investor may want and be ready to negotiate – be realistic in your expectations.  Agree a structure that keeps you incentivised and offers scope for future fundraising if needed.  Think of your investor as a strong strategic ally.

29. Contact me Kathryn Walls E: kathryn.walls@millsselig.com T: 028 9024 3878 Thank You