1. Mishcon de Reya 16 January 2013 Raising Finance / Introduction to Investment  Presentation at Recruitment International’s “SME – How to Build an Exceptional Recruitment Business”  Benedict T Annable

2. Introduction Aims  Introduce principal options for raising finance to grow your business  Explain key terms, concepts and issues  Clarify common terminology

3. Introduction Types of Finance  Two traditional finance routes: –Debt : Banks –Equity : Private Capital/Venture Capital

4. Raising Finance Debt  Financial Due Diligence – historic financial information, business plan and projected cash-flows/budgets  Financial Covenants – consider consequence of breach  Security – Legal Charge over Assets? Mortgage? Personal Guarantee?  Other sources of debt finance – Overdraft and Invoice Financing/Factoring

5. Raising Finance Equity - Introduction  Stages: –Term Sheet / Heads of Term –Commercial, Financial and Legal Due Diligence –Negotiation of Investment Agreement / Shareholders Agreement / Subscription and Shareholders Agreement

6. Raising Finance Equity - Term Sheet and Investment Agreement/Shareholders Agreement – Key Terms (1/5)  Warranties/Indemnities and Disclosure Letter: –Historic Financial Information –Capitalisation Table (Cap Table) –Key Contracts and/or Assets –Employees  Type of Equity: –Ordinary Shares –Founder Shares –Preference Shares –Redeemable Shares –A/B/C Shares

7. Raising Finance Equity - Term Sheet and Investment Agreement/Shareholders Agreement – Key Terms (2/5)  Control –Business Plan –Right to appoint Director/Board Member –Shareholder Veto Rights / Minority Consents  Raising Further Finance: –Block on further equity –Pre-emption Rights –“Down Round” anti-dilution  Dividend Policy – Preference Shares?

8. Raising Finance Equity - Term Sheet and Investment Agreement/Shareholders Agreement – Key Terms (3/5)  Founder Shares - Good Leaver/Bad Leaver  Exit: –Pre-emption Rights/Right of First Refusal –Sale –Listing (Is this an Exit?) –Liquidation Preference (1x/2x/3x investment) –Redeemable Shares –Drag Along –Tag Along / Co-Sale Right

9. Raising Finance Equity - Term Sheet and Investment Agreement/Shareholders Agreement – Key Terms (4/5)  Information Rights – what do you currently prepare? –Annual Accounts (audited?) –Monthly/Quarterly Management Accounts –Monthly/Quarterly/Annual Cash-flow Projections –Monthly/Quarterly/Annual Budget  Employee Share Option Plan (ESOP)

10. Raising Finance Equity - Term Sheet and Investment Agreement/Shareholders Agreement – Key Terms (5/5)  Exclusivity and Break Fees  Conditions and Milestones

11. Raising Finance Conclusions  Financing – Consider Debt vs. Equity  Consider consequences for the business and the business owner for each option  Be prepared!

12. Mishcon de Reya About us  Mishcon de Reya is a London law firm with over 350 lawyers that prides itself in providing a best in class service to its clients  One of our specialities is advising SMEs and owner-managed businesses on acquisitions and investments  We also have a dedicated Recruitment Services Group, made up of recruitment specialists from our corporate, employment and litigation practices: we act for numerous high-profile recruitment clients on the most important matters which face them, and fully understand the dynamics of today's increasingly complex, competitive and global recruitment environment.