Bixteth Partners specialises in sourcing growth capital for early-stage companies and providing advice to founders on capital requirements and growth planning with the aim of getting clients “investment ready” whatever their stage - Post-Seed, Early Growth, Series-A or beyond.
Led by Guy Briselden, who has over 30 years of capital markets experience, the team of partners has deep experience in public and private markets, from Private Equity through Investment Banking, Financial PR and Board roles, and an extensive investor network of institutional firms, HNW individuals and family offices. They undertake a staged and targeted approach to investor outreach to help companies raise the right amount at the right time, with investors that represent the best fit for their growth plans. They also assist with plans for an ultimate exit or strategic investment, whether that turns out to be private equity or secondary VC investment, trade sale or IPO (Aquis, AIM or Main Market).
Bixteth's sweet spot is funding requirements between £1m and £10m, but have supported on smaller and larger deals. They are sector agnostic, with the exceptions of deeptech and life sciences where they are less active. They have most recently advised companies in the premium spirits, digital printing and retail tech / Metaverse industries. Bixteth do not often assist companies which are pre-revenue or in very early revenue as it is not a sweet spot for their investor network; however, they are happy to offer advice and potentially some introductions.
In this section we cover how to create an impactful crowdfunding campaign that covers the key points required to enable investors to consider the investment opportunity.
A crowdfunding campaign is a financial promotion and therefore must be formally signed off by a regulated entity, which will either be the crowdfunding platform itself or their appointed representative. This approval process will confirm that the campaign is clear, fair and not misleading.
You will need to provide supporting evidence for all facts and statements made in the campaign. It’s best to collate these documents as you draft the campaign so that nothing is missed.
Below we cover a checklist of items that should be included within the core sections of a typical crowdfunding campaign.
Summary
This sits at the top of every crowdfunding campaign and includes:
The pre-money equity value can be calculated as follows:
Where:
Idea
Routes / channels to market
Team
Financials
Funding / Investment Opportunity
Inspire
Consider your audience carefully and what might motivate them to invest. Each investor has a different appetite and you are attempting to appeal to a large and varied pool. Crowdfunding investors are often motivated not only by financial returns and tax incentives, but also by the company’s mission, social impact and added perks.
Be transparent
While investor Q&A is a core part of the crowdfunding process, a well drafted campaign should minimise the number of questions. Many of the questions raised during live campaigns relate to clarification – try to be as specific as possible and avoid industry jargon.
Change perspective
Take a step back from the detail and consider investment risks instead of operational risks, i.e. what are the things that will impact the performance of the business and thus the returns that investors will expect.
A video is an important part of a campaign – traditional fundraising involves a lot of a face to face meetings with potential investors, whereas crowdfunding involves appealing to a disperse, largely online audience and you cannot meet everyone. A video replaces the face to face meeting, giving investors the opportunity to hear directly from you and members of your team and to see your products or services in action.
There are a number of different companies that film and produce crowdfunding videos for you. The crowdfunding platform you are using will likely have producers that they can recommend, and may even have an arrangement in place to do this more economically than approaching a producer independently. Most crowdfunding platforms will expect you to cover the cost of producing the video. Some companies use the opportunity to produce a version that can also be used for generic marketing purposes, to make the exercise as cost effective as possible.
Below we set out our recommended video template:
Format
Content
A few style tips
Try to speak clearly and slowly. As time will be tight, make sure your script is short and impactful. This may require a few rounds or refinements before it is ready to film.
Try not to appear too formal. Professionalism is important; however, potential investors will use this as an opportunity to assess your character. This can be achieved by speaking to a friend or colleague instead of directly to camera, while filming.
It can be helpful to provide certain supporting documents to help potential investors consider your investment proposal. Some of these items may be subject to restricted access owing to sensitivity.
Legal due diligence (also referred to as LDD) is the diligence stream that focuses on the company’s contracts and agreements. Investors are keen to ensure that the business is operating with the appropriate agreements, protections and processes in place.
The investor’s appointed law firm will issue a questionnaire with a series of information requests and questions. You will be required to provide the answers and supporting information, for which you may ask your appointed lawyer for help. There will then be some discussion back and forth to clarify certain items.
The investor’s lawyers will prepare a short legal due diligence report which summarises the responses, their views on them and any matters that should be dealt with prior to completion of the transaction.
You may be asked to provide a warranty over the accuracy of the contents of the legal due diligence report.
Exactly what is included within an LDD scope will vary between investors; however, there are certain common areas of interest for the majority of investors.
Corporate
This involves confirming the current ownership of the company’s equity and corporate structure. The investor’s law firm will run a search of Companies House for each corporate entity (limited company or otherwise) and review the latest annual returns to confirm the accuracy of the share cap table.
It is worth ensuring the company’s annual return is up to date and any recent changes in the equity capital have been documented in the company’s statutory book as appropriate.
Employment
This entails confirmation of the employment status of key members of the team (and in some cases, all members of the team).
Investors or their appointed law firm will ask for copies of service agreements (service contracts or employment contracts) to review and assess the suitability of key terms, including:
If you or key members of the team do not have service agreements, you will need to put them in place as part of the transaction. Investors often have a standard template, or this can be drafted by your legal counsel.
Investors will also ask for details of any other incentive schemes in place, such as bonus arrangements or option schemes.
Finally, they will enquire as to whether there are any outstanding or unresolved disputes with employees or former employees.
Contracts
This involves a review of any key contracts, for example, customer contracts, supplier contracts and / or leases.
This helps investors to understand:
Customer, supplier and financing contracts sometimes include “change of ownership” clauses, which require that the relevant party is notified of any change of ownership or control of the business. In some cases, this clause may also require that the other party consents to any change of ownership prior to completion of the transaction. Even a minority equity investment is sometimes considered to be a change of ownership or control and therefore it is a good idea to search for these clauses within all key contracts and notify the relevant parties before completion of the deal. Time taken for third parties to respond can sometimes hold up completion.
Intellectual Property
Investors will want to ensure that all IP is owned by the business and not by individuals or employees. They will also review what, if any, arrangements you have in place to protect your IP, such as patents.
Health and Safety
Among other sectors, health and safety is of particular importance to businesses operating within construction, engineering, food production, manufacturing and leisure. An investor may ask to review your health and safety policy to ensure that you take these responsibilities seriously.
Insurance
Investors may wish to review the company’s insurance policies to ensure that there is appropriate cover in place.
Anti-bribery
Investors may wish to discuss your approach to preventing and reporting bribery and may review your anti-bribery policy, or ask you to put one in place.
Environmental
If relevant to your business, an investor may want to check that you have all the necessary permits and licenses in relation to environmental matters.
Regulatory
If relevant, an investor may ask for evidence that all relevant regulatory permits are in place in order for the company to conduct its business.
Banking
Investors may review the company’s banking arrangements and facilities, specifically: lenders, facility limits, security arrangements and covenants.
Equity investment is all about partnering with people. Understanding how you and your team operate is important to potential investors.
From your first interaction, they will be assessing you, your approach, your ability to deliver your plan, how you work with others, how well you listen and consult and where you might need extra support.
For obvious reasons, perceived weaknesses in the founders or management team is rarely given as a reason for decline; however, it is a very common reason in practice. It is therefore important to maintain a pragmatic approach throughout the deal process – highlight your strengths, be realistic, be open about your weaknesses and areas for improvement, be thoughtful and reasonable in your negotiation and be patient with the rounds of questions and diligence.
It’s also important that, throughout the deal process, you are able to assess how well you work with your potential investors so that you can be confident their investment will result in a good and workable strategic partnership.
Investors will be seeking to gain an understanding of:
On a more serious note, they will also run basic background checks on criminal convictions, director disqualifications or PR issues. It’s best to be up front about anything that would likely cause concern.
A note on ambition – there is a lot of conflicting advice around on how “ambitious” founders should be in their approach. This is partly because investors have a varying appetite for risk. It’s helpful to possess and portray a certain level of ambition and resilience to convey the confidence you have in your product or service, but ensure that this level of ambition is credible and is backed up by realistic and achievable forecasts for the business.
There are a variety of means for assessing individuals and the team dynamic, some more formal than others:
Spending time together
When you're trying to juggle running your business as well as a fundraise, it can be difficult to remember to spend time building this relationship. If time is tight, this can be done in part through making due diligence sessions face to face. It sounds obvious but it is fundamental and often missed - make time to invest in getting to know your investor.
Referencing
Investors may ask you to provide references – usually at least one personal and one professional.
Questionnaires
You may be asked to complete a questionnaire that covers any historic convictions, directorships, alternative income or activities etc. which you may be asked to warrant at completion.
Psychometric testing
You may be asked to complete a psychometric test.
Consultants
An investor may formally engage a specialist consultant to spend time with you and the team and provide an assessment. Alternatively, they may introduce an individual from their network or portfolio to do the same on a more informal basis.
Below are a few of the more common areas of weakness identified by venture investors.
Lack of clarity in roles or imbalance between the founders
It can be difficult to clearly define roles in a business that is evolving very quickly, and hence this issue is common in high growth, early stage businesses.
Ways to mitigate this
Limited prior experience of growing a successful business
Investors tend to favour entrepreneurs that have done it before, i.e. successfully grown and sold a business. If this is the case then highlight it, if not, it can be helpful to demonstrate track record within a relevant industry and related successes.
The need for a finance lead or finance director
It is very common for early stage, high growth businesses to lack support in finance and reporting. With new external investment and shareholder reporting, the need for support in the finance function will increase. If you intend to appoint a head of finance or a finance director, or your investor requires that you do, either as part of the process or post completion.
Misalignment in approach or personality
This can manifest in a number of different ways and is not easy to mitigate – if there is a fundamental misalignment of approach, then the partnership is unlikely to be successful.
A strong team dynamic is the best way to overcome this, if it becomes an issue in securing investment. A particularly driven and ambitious CEO, with the capacity to listen, alongside a more prudent operations or finance lead, may present a successful combination, while one of these individuals acting alone may not be considered investable.
Equity investment is all about partnering with people. Understanding how you and your team operate is important to potential investors.
From your first interaction, they will be assessing you, your approach, your ability to deliver your plan, how you work with others, how well you listen and consult and where you might need extra support.
For obvious reasons, perceived weaknesses in the founders or management team is rarely given as a reason for decline; however, it is a very common reason in practice. It is therefore important to maintain a pragmatic approach throughout the deal process – highlight your strengths, be realistic, be open about your weaknesses and areas for improvement, be thoughtful and reasonable in your negotiation and be patient with the rounds of questions and diligence.
It’s also important that, throughout the deal process, you are able to assess how well you work with your potential investors so that you can be confident their investment will result in a good and workable strategic partnership.
Management due diligence involves the assessment of the management team, highlighting areas of strength and weakness associated with individuals and the team as a whole.
Investors will be seeking to gain an understanding of:
They will also run basic background checks on criminal convictions or director disqualification. It is helpful to be up front about anything that would likely cause concern.
There are a variety of means for assessing individuals and the team dynamic, some more formal than others:
Spending time together
When you're trying to juggle running your business as well as a fundraise, it can be difficult to remember to spend time building this relationship. If time is tight, this can be done in part through making due diligence sessions face to face. It sounds obvious but it is fundamental and often missed - make time to invest in getting to know your investor.
Referencing
Investors will ask you and possibly other members of the team to provide references.
Questionnaires
You may be asked to complete a questionnaire that asks for the details of any historic convictions, directorships, alternative income or activities etc. which you may be asked to warrant at completion.
Psychometric testing
You may be asked to complete a psychometric test.
Consultants
An investor may formally engage a specialist consultant to spend time with you and the team and provide an assessment. The consultant’s scope may be to conduct psychometric testing, attend management meetings and meet with individual team members.
Below are a few of the more common areas of weakness identified by investors.
Lack of clarity in roles or reporting structures
This can result in misalignment and miscommunication across the team, as well as a lack of leadership on certain workstreams.
Ways to mitigate this:
Inability to discuss, debate and agree
When teams work well together, challenging discussions will result in constructive conclusions. Some management teams struggle to hold effective meetings which can result in poor decision making. This is of particular interest to investors as they will be seeking reassurance that the team can “cope” when things don’t go to plan.
Ways to mitigate this:
Misalignment in approach or personality
This can manifest in a number of different ways and is not easy to mitigate – if there is a fundamental misalignment of approach, then the partnership is unlikely to be successful.
A strong team dynamic is the best way to overcome this, if it becomes an issue in securing investment. A particularly driven and ambitious CEO, with the capacity to listen, alongside a more prudent operations or finance lead, may present a successful combination, while one of these individuals acting alone may not be considered investable.
Investors often seek to exert this influence through the Chairman position, as a good Chairman can often provide the guidance and direction required.
All institutional investors are required to carry out KYC checks on your company, key shareholders and directors.
These apply to the following individuals:
You will be required to provide the following information for these individuals:
Alongside the adoption of the revised articles of association and signing of the shareholders agreement, there are a number of other documents required to complete the seed round. Drafting of these documents should form part of the scope of works for your legal advisors.
A share certificate will be produced for each seed investor, setting out the number of shares they hold, the class of share (most likely ordinary shares for a seed round) and the nominal price per share (often a penny or a pound).
Each share certificate is signed by director of the company and witnessed.
A board minute will be prepared that will approve:
The board minute should also:
The board minute is signed by the Chairman of the board.
This ordinarily takes the form of one document with two resolutions:
The document is signed by the existing shareholders of the company.
If no warranties have been provided, then a disclosure letter is not required.
If warranties have been provided, then the warrantors and the company may wish to provide a disclosure letter, which sets out information relevant to the warranties.
For example, the founder (if one of the warrantors) may have provided a warranty that there is no outstanding litigation with any former employees. If there is any outstanding litigation, then this would be disclosed in the disclosure letter and referenced to that particular warranty. This ensures that the seed investors are aware of these issues and provides legal protection to the warrantor, as the investors would not be able to make a claim against the warrantor for breach of warranty in relation to that particular litigation. If the outstanding employee case was not disclosed and were to come to light after the transaction, then the seed investors may be able to claim for breach of warranty.
The disclosure letter is signed by the warrantors and the seed investors, to confirm receipt.
If there are any documents that are defined or referred to in the shareholders agreement, in particular, those referred to in the warranties, then these must be provided at completion, for example, a copy of the business plan, the investor presentation, the management accounts or any due diligence reports.
Alongside the adoption of the revised articles of association, signing of the shareholders agreement, there are a number of other documents and actions required to complete the round. Drafting of these documents will normally form part of the scope of works for the law firm representing the investor, who is also taking the lead on the investment documentation. It may be part of your law firm’s scope to review these documents and actions.
A share certificate will be produced for each investor in the round, setting out the number of shares they hold, the class of share and the nominal price per share (often a penny or a pound).
Each share certificate is signed by director of the company and witnessed.
A board minute will be prepared that will approve:
The board minute should also:
The board minute is signed by the Chairman of the board.
This ordinarily takes the form of one document with two resolutions:
The document is signed by the existing shareholders of the company.
A disclosure letter is usually drafted in response to certain individuals and the company agreeing to provide warranties.
The letter sets out any information that relates to the warranties.
For example, the CEO may have provided a warranty that there is no outstanding litigation with any former employees. If there is any outstanding litigation, then this would be disclosed in the disclosure letter and referenced to that particular warranty. This ensures that the new investors are aware of these matters and provides legal protection to the warrantor, as the investors would not be able to make a claim against the warrantor for breach of warranty in relation to that particular litigation. If the outstanding employee case was not disclosed and were to come to light after the transaction, then the new investors may be able to claim for breach of warranty.
The disclosure letter is signed by the warrantors and the new investor(s), to confirm receipt.
Any documents that are defined or referred to in the shareholders agreement, in particular, those referred to in the warranties, must be provided at completion, for example, a copy of the business plan, the investor presentation, the management accounts or any due diligence reports.
The investor’s legal counsel will carry out a number of specific pre-completion searches:
Make sure that you obtain power of attorney for any key individuals that are unable to attend the completion meeting and are unable to sign remotely. It is surprising how often completions are held up by availability.
If the company has restructured as part of the investment, ensure that a bank account has been set up for the entity that will receive the proceeds. It can take time to put a bank account in place and this can delay completion.
Once the fundraise is complete, you will need to:
Shares won’t qualify for SEIS or EIS relief if they aren’t paid for at the time of issue. Make sure you have a bank account set up so you are ready to take payment.
SEIS3 and EIS3 forms, which enable investors to claim tax relief, can only be issued to investors once the business has been trading for at least 4 months.
If an investor develops a connection with the company during the hold period (3 years for SEIS and EIS), then they will lose their tax relief.
If your company ceases to qualify for the scheme during the hold period (3 years for SEIS and EIS), then your investors will lose their tax relief.
Financial due diligence for early venture rounds is typically conducted by the investors themselves, but may also involve the appointment of an external consultant or firm to review the company’s finances depending on complexity of the business and size of the raise.
You should ask potential investors what their process entails and their specific approach to financial due diligence in order that you can prepare in advance.
Financial due diligence (also referred to as FDD) is the diligence stream that focuses on the company’s trading, balance sheet and forecasts. It's an important area of diligence for new investors as it covers how their money will be spent, the extent to which it is at risk and the return it is expected to generate.
FDD usually begins after the first meeting when the investor asks for a business plan / financial model and a copy of the company’s latest accounts.
A more detailed review will usually take place once the term sheet has been agreed. Where there are multiple investors, the lead investor will take the lead on undertaking due diligence.
The investor may:
Exactly what is included within an FDD scope will vary between investors; however, there are certain core items that crop up regularly.
Forecast cash flow
Investors will seek to ensure that their funding is sufficient and that you have enough cash headroom to deliver the business plan while keeping the business going.
Many companies at the venture stage are loss-making – in this case, the cash burn rate is of particular interest. Investors will assess the rate of depletion and ensure there is sufficient time and headroom before the business breaks even or raises the next round of funding.
We recommend including a forecast cash flow within your business plan / financial forecast model.
Balance sheet
Investors will assess the strength of the company’s balance sheet. Specifically, they will want to ensure that the value of assets is fair and not misrepresented, as well as understand how successfully the business converts work, orders and turnover into cash. In doing this, they will review your cash balance, aged debtors and work in progress ("WIP").
An "aged debtor" analysis illustrates how young or old the debtor balances are - if they are old, then that may be an indication that the business is slow to collect cash after invoices have been issued.
An "aged WIP" analysis does the same thing, but for work in progress, i.e. work that has not yet been invoiced. A high proportion of old WIP balances can indicate issues in getting invoices out to customers.
Investors may also review the value of tangible and intangible assets to ensure these are booked appropriately. For example, the value of stock and when the last stock take was undertaken.
On the liabilities side of the balance sheet, investors will be interested in creditor balance, i.e. how promptly the business pays suppliers.
They will also want to understand the details and terms of any debt items on the balance sheet, including overdrafts, term loans and shareholder loans.
Financial forecast or business plan
The financial forecast sets out what you expect to achieve with the new funding and provides a forward vision of what the business might look like at the point of exit, thus helping investors to estimated their potential returns.
We recommend preparing a short written document to accompany the Excel file, that sets out the key driving assumptions.
The following items are typically of interest to investors:
A note on revenue recognition
Many small businesses book turnover when cash is received or an order is placed. The more usual accounting practice is for turnover to be booked as and when services are delivered, for example:
A software business charges customers their annual subscription fee in advance
It is important to recognise turnover in line with the delivery of products and services in order to provide a reliable estimate of turnover growth, run rate turnover and profitability. Investors use these metrics for valuation analyses. If customers are charged in advance in a growing business, and turnover is booked at the time of cash receipt, this will overstate the company’s turnover and may result in difficult discussions when this emerges during due diligence.
Investors may also apply sensitivities to the assumptions within the business plan in order to understand how profit, cash and their anticipated return are impacted if things don’t go according to plan. It therefore makes sense to have a model that is built in Excel, integrated and can be flexed relatively easily.
To assess the feasibility of forecasted turnover, investors may ask to see a pipeline analysis, setting out discussions and progress with current and potential customers.
Historic trading
How the business has performed historically is one indicator for how realistic the forecasts are. Recent historic trading should ideally be included within the financial forecast model so that the forecasts can be sense-checked easily.
Investors may also ask for the company’s performance relative to budget in prior years, if sufficiently established to have set budgets historically. This is a mechanism for them to test the company’s ability to budget and perform in line with expectations.
Finance function
Investors may enquire about the finance systems used and their robustness, as well as who in the company runs the numbers. They may suggest additional resource or investment as a result of this assessment.
Cash controls
Investors will want to ensure that there are adequate cash controls in place so that the new investment is secure. These include permissions around who can set up, approve and make payments from the company’s accounts. Make sure these are set up appropriately with your bank ahead of the fundraise.
