The Tech & High Growth team at Cooper Parry are the UK’s leading startup and scaleup partner in the accounting and tax space, working with fast-growing venture backed businesses and the people that own them, to get ahead of the challenges and opportunities that lie in wait.
The team work with over 500 early stage and over 250 scale ups, building relationships with the Founders, CFOs, and Boards of high growth businesses. Unlike any other team in the tech sector, they support clients across all financial needs from Pre-Seed to Exit and beyond.
The Tech & High Growth team is an internal ecosystem built specifically for high growth businesses, and it doesn’t exist at other firms. That’s just one of the reasons why Cooper Parry are known as the rebels of accountancy. They don’t do suits and don’t do boring, instead cutting straight to the answers with the freedom to work closely with clients to deliver the pragmatic and timely support they need.
With an entrepreneurial spirit at its core, CP is here to ‘Disrupt, Lead and Make Life Count’ – backed up by being the 22nd Best Company to Work for in the UK and No.1 Accounting firm to work for in the UK. All whilst being largest accountancy firm to be B Corp Certified.
Operating from a network of 11 offices across the UK, the team serves clients across multiple industries including technology, financial services and digital assets, retail and consumer, health and social care, creative and media, professional services, property, construction, manufacturing and industrials.
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.
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.
Financial due diligence (also referred to as FDD) is the diligence stream that focuses on your trading, accounts 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 begins after the first meeting when the investor asks for a business plan / financial model and the company’s latest accounts.
A more detailed review will usually take place once the term sheet has been agreed.
Investors will typically:
Exactly what is included within an FDD scope will vary between investors and will depend on the business; 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. They will therefore want to understand, assess and stress test the forecast cash flow.
The financial forecast model should include a forecast cash flow.
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. They will be interested in the capitalisation, revaluation and depreciation policies applied to assets. Specifically in relation to stock, they will want to understand the basis of valuation for stock, the method of provisioning and stock turnover.
On the liabilities side of the balance sheet, investors will be interested in the trade creditor balance, i.e. how promptly the business pays suppliers. They will want to understand any deferred revenue, i.e. turnover for which cash has been received but where the services has not yet been delivered.
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, as well as any hire purchase agreements or finance lease commitments. Of particular interest are covenants attached to banking facilities, whether the business is in compliance with these covenants and how they are monitored.
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:
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.
Historic trading may also reveal seasonality or challenging trading periods, which the investor will want to understand and greater detail.
Finance function
Investors will want to understand what systems or software you use to manage your finance function, to ensure that it is robust enough to support your growth and whether it requires investment.
They will also be interested in the individuals within your finance team and their capabilities to understand whether further resource would help the business to deliver the plan.
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.
Tax due diligence may form part of financial due diligence (FDD), or may be a standalone scope, and is usually undertaken by institutional investors in either a venture capital round or, more commonly, in a growth capital round.
The intention of tax due diligence is to understand the different taxes that apply to the business, or may apply in future, the application of different tax jurisdictions and to assess any current or future potential tax liabilities that may arise.
It is usually undertaken by a third party accountancy firm through an initial questionnaire and follow up questions to clarify.
The scope will include compliance with all relevant categories of tax, such as:
As well as the potential tax implications of the transaction and related activities, including:
Here’s a checklist of items to compile in preparation for tax due diligence:
Commercial due diligence for venture rounds is typically conducted as a joint effort between the investors themselves and individuals from their network. Some funds have specific advisory boards or networks dedicated to this purpose – comprised of individuals with specific, sector expertise that they can call upon.
Occasionally, funds may also wish to formally appoint a consultant, possibly an individual or a firm, to conduct a more formal exercise. This may be applicable in the case of larger rounds, more complex businesses or a novel market.
Commercial due diligence (also referred to as CDD) is the diligence stream that focuses on the commercial elements surrounding a company, in particular – the market in which it operates, it’s positioning within that market, for example, in relation to competitors, the strength of the product or service and the customers it currently serves.
The objective for investors is to verify the legitimacy, strength and potential of the product or service and thus bring confidence in the future growth prospects and value generation of the business.
Investors will begin assessing the commerciality of the product or service from the initial meeting. Unlike financial and legal due diligence, the scope of commercial due diligence is more variable and tailored to each individual business. It is not usually organised into a specific scope and may comprise a number of different activities and workstreams.
In practice, it may comprise:
Market outlook
Areas of interest:
A large addressable market that is growing is an important feature for venture investors.
Positioning within the market and competition
Areas of interest:
There is arguably some fatigue among investors of the top-right-quadrant graph, which plots competitors on two axes and features the company in the top right. It is difficult to be explicit about the nuance of how the business is differentiated through a graph such as this. This could be used to set the scene, while a table that lists the more detailed features of competitor’s offerings, alongside your own, may be more helpful in answering the question of why and how you are different.
How compelling the company’s product or service is
This is assessed through a trial or demo of the product, and usually discussions with certain customers.
Areas of interest:
Quality of the business model
There is some overlap here with financial due diligence, but the objective is to understand the legitimacy of the business model, either in generating a profit or equity value. From a commercial perspective, areas of interest are as follows:
