Fund Raising Cost

Things are going well; you have satisfied customers, and your startup is expanding – but not fast enough. As a visionary, you see a world of potential, but in order to take advantage of it, you’ll need additional resources, which will need money.

You’ve made the decision to raise equity expansion capital. Investors will adore your company because of its existing traction, market size, and management team, so all you have to do now is tell them about it and wait for the offers to come in. Right?

Wrong.

Fundraising is tough, time-consuming, and complex. It also costs money to raise funds. When most entrepreneurs start out, they don’t realize this.

Envestors, which has raised over £100 million for over 200 companies, has developed an overview of the expenses of obtaining money to help establish expectations. This easy-to-follow approach will assist you in creating a budget for your increase.

The cost of legal services, consulting services, marketing, investor access, and the hidden expenses of dealing with funds are all covered in the handbook. To cover initial expenses, a chest of £7,000 to £29,000 is suggested as a general estimate. When success and/or monitoring and due diligence costs for funds are included in, your overall expenditure will vary from £20,000 to £60,000, depending on the funds source and final amount raised.

For increases of more than £500k, this may range from 5% to 13%, while for raises of less than £250k, it can range from 9% to 24%.

What exactly is this sum made up of, and why do you need so much?

Fees for legal representation

A variety of legal papers are required when selling stock in your company. This is an area where you should spend money, therefore avoid the temptation to get any free templates from the internet. What may not seem to be a major issue now may become a major one for you later. While we always suggest working with an early-stage investment lawyer, you may choose between platform-based services like Seedlegals, which start at £1,000 and are less costly, or companies like CMS, which start at £5,000 and are a safer option for enterprises beyond the seed stage.

Term Sheet

The Term Sheet is a summary of the agreement’s key terms. This is something you can complete yourself, and your lawyer will utilize it as a starting point for further paperwork.

The Shareholders Agreement

 Establishes the management’s and shareholders’ relationship after the investment. It addresses issues like as voting rights, share transfer regulations, and dispute resolution procedures.

This lays forth the terms of the Share Subscription, including pre-conditions of the investment, warranties regarding the current company, and details of any options or incentives to be granted. It is often coupled with the Shareholders Agreement.

Service Agreements

These are employment contracts with managers/directors that contain non-compete clauses. Many investors will look through employment contracts as part of their due diligence, so you will need it afterward, although it isn’t required to start your fundraising.

Disclosure Letter

This letter provides disclosures in relation to the Subscription Agreement’s warranties.

Articles of Association

The company’s internal rules (e.g., processes at shareholder and board meetings), as well as shareholder rights, are outlined in the articles of association (e.g. voting and dividend rights). Companies House publishes articles that are open to the public.

Deed of Adherence

This is the name given to a short and basic document that is used when new investors join an existing group. The provisions of the current Shareholders Agreement and Articles must be accepted without modification by the new investors since they were previously negotiated and approved by comparable investors in a prior round.

This is the name given to a short and basic document that is used when new investors join an existing group. The provisions of the current Shareholders Agreement and Articles must be accepted without modification by the new investors since they were previously negotiated and approved by comparable investors in a prior round.

Fees for tax advice

Businesses that qualify for the Seed and/or Enterprise Investment Scheme (S/EIS) should take advantage of it since it provides a significant incentive for investors. However, like with other government programs, S/EIS necessitates extensive documentation, and it’s all too simple to make errors. If you apply yourself and make a mistake, your application may be denied, or your investors may discover that they are not eligible for the tax benefits after all. We usually recommend collaborating with a third-party on your application due to its intricacy. The initial investment ranges from £1,500 to £3,000.

Advisory fees for corporate finance

Many companies seek corporate finance assistance in addition to legal counsel to guarantee they are “investment ready.”

You must have a clear proposal, i.e., a response to the question “why should I invest in you?” as well as the necessary paperwork to back your raise. ‘Investment preparedness’ programs are sponsored by certain Local Enterprise Partnerships (LEPs) or Chambers of Commerce. Fees may range from £1,000 to £10,000, or a monthly retainer can be used.

Costs of marketing

The cost of marketing varies significantly from one increase to the next. Many companies choose to produce all of their marketing materials in-house, while others spend money on fancy pitch decks, multi-channel awareness campaigns, and animated films. The appropriate quantity is determined by a variety of variables, including your target demographic, the size of your company, your present degree of recognition, and the kind of investor you’re seeking.

Working with an agency to create a pitch deck is a sensible choice for many. Many pitch decks make it difficult to comprehend what the company is about and why anybody would want to invest in it. Spending too much time on the wrong subjects, cramming a novella into a single slide, and disregarding all fundamental design principles are all common blunders. An investor will never invest if they don’t comprehend what you do.

Video has been proven to increase engagement, so it’s worth thinking about. On the other hand, an excellent video may be expensive, with an average budget of £3,000.

Fees for registration

While many people think that utilizing LinkedIn to locate all of the investors they need is a good idea, cold-calling investors isn’t the greatest method to raise money.

There are organizations that have networks of registered investors; these networks usually charge fees for entry, but they have a decent understanding of the kind of transactions that will interest their membership.

Each network is different; some offer a fixed price for access while others charge for investment readiness and marketing.

Fees range from £200 to £6,000, and depending on the service, you may not be required to pay advising fees.

Fees for success

Success fees are calculated as a proportion of the money collected via a third party. Typically, between 5% and 7% of the money collected is charged, but some may charge considerably more. Options may be requested by certain brokers.

Abortion expenses and due diligence fees.

When dealing with money, these fees are often levied to cover the expense of performing legal, financial, and technological due diligence on your business. This may range from £10,000 to £25,000 and is usually deducted from the money they invest. If you cancel the contract, you may be responsible for these expenses as an abort fee.

Fees for post-investment monitoring

Once the funds are in place, most investment funds will need you to pay monitoring fees. These typically cost about £6,000 per year. You may be able to increase the amount of money collected to pay part or all of the expenses in certain instances.

Nothing in life is free, just like nothing else. Regrettably, raising funds necessitates the expenditure of funds. The key is to be aware of the scope of expenses upfront and to ensure that you spend your money wisely in order to maximize your chances of collecting the funds you need to expand.