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8 don'ts in crowdfunding

31 March 2016


Crowdfunding may seem simple, however there are some critical errors may people seem to make which derail their campaign. We have prepared a list of 8 suggestions that you should never do when running a campaign;

(1) Don’t spring your idea on the market.


Most successful campaigns already have a buzz around them when they come to market. This can take time to create, socalise your proposition to your core investors and potential participants to help warm the community to your proposition. We suggest that a 2 month time window prior to launching your campaign will give significant traction to your proposition and help you get momentum from day one.

(2) Set a realistic raise target.


Set a funding target that is reasonable, achievable and makes sense for your proposition. You should be able to justify why the amount you're raising is suitable and hit your target. Nothing kills a campaign quicker than trying to raise an unjustifiable sum.

(3) Set an appropriate time frame.

Successful crowdfunding campaigns rely upon setting an appropriate timeframe for your raise. 45 days usually works best, 30 days can go very quickly and lots of campaigns usually build the most traction towards their final stages. 60 days is typically too long, this can suggest a lack of urgency in your need to raise cash.

(4) Communicate a clear product message


If an investor is initially undecided about investing they usually wont. Make sure that you convey your product idea clearly and succinctly.

(5) Don’t assume your investors know about crowdfunding


Although crowdfunding has become a mainstream route to funding this doesn’t mean your audience knows what it is. Hence, it’s vital to know your audience, and introduce them to what crowdfunding is when making your approach.

(6) Be responsive


You are trying to persuade investors to part with their hard earned cash, and this is no easy feat. Make sure you are on call to respond to questions and you always convey the energy and passion you have for your business.

(7) Target the correct audience


If your product is targeted at a specialist market make sure you target those users, not the general population. This can be done via mediums already dedicated to your target consumer.

(8) Deliver!


Make sure once you finalise your raise you deliver on any rewards you may have promised to your investors. This is a must otherwise they will lose confidence and may not support you in further fund raises.

Happy investing.

The InvestDen team.

Valuing Early Stage Businesses

07 January 2016


Valuing an early-stage business is a difficult task. There is no unanimous formula or method used that investors or entrepreneurs can firmly rely upon and often it is closer to an art than a science.

Beginning to value a business, particularly one that has not yet begun to trade, is very difficult. Using cash flow analysis or offering a multiple on revenues or potential revenues, when this information is uncertain, is simply not an appropriate process to undertake.

For an established business, two very common methods are;

  • Discounted cash flow – this uses future free cash flow projections and discounts them to arrive at a present value. This value is then used to evaluate an investment
  • Net present value – this is the value in the present sum of money in contrast to a future value it may have when it has been invested at compound interest.


Early-stage businesses have little or no track record and their future financial performance and cash flows are uncertain so these methods are almost impossible to apply.

If you are pitching for investment into your startup, recognize that a valuation is difficult to arrive at and often a sensitive topic (ie. what is an idea and a business plan or some beta tech really worth and how can you justify this?). Be sensible on your valuation - you don’t want to discourage potential investors. Your valuation is based on the idea, the market and your team.

Why set a valuation?


You need to set what you believe to be a fair valuation in order to calculate how much investors should pay to own a percentage of your company at the present time. These valuation metrics can be split into post and pre money valuations. In allocating equity, keep in mind that this very likely will not be your own financing so you (and your investors) may suffer dilution of your holdings as the business matures.

Pre-money valuation - is the value of the company now, before you accept your next investment round

Post-money valuation - is the value of the company after you accept investment

Valuation Examples


Below are some simple valuation calculations to help illustrate the concept:

If the business is seeking to raise £150k and has set a pre money valuation of £1m (£1.15m post-money) then the business would need to offer 13.04% equity in their next round.

The Calculation = (100k/£1.15m) x 100 = 13.04%.

Contrastingly, if the business raised £150k at a £1m post-money valuation (£900k pre-money) they would have needed to sell 15% of their shares.

Calculation = (£150k/£1m) x 100 = 10%

The difference between the pre-money and post-money valuation is fundamental to any investment deal. For further information on investment terms or to access resources on calculations please drop us an email at support@investden.com

What to think about when valuing your company


The valuation of an early stage company will be determined by a combination of factors. Market forces, investor demand, sector growth, barriers to entry, unique selling points, all remain large factors in determines the valuation of a company.

Below are some of the factors to consider:

  • Your team – A strong, reputable team with proven and experienced key members will be able to command a higher valuation because it is more likely they will be able to build a successful company. Most investors consider the quality of management as the most important factor when investing.
  • Comparable companies/Industry averages – The industry in which your company operates plays an important part in determining valuation. Hot industries i.e. Fintech, generally allow a company to achieve a higher valuation compared to companies operating in a different industry yet are at the same stage of development. This is due to the fact “hot” industries have greater demand from investors and more money ready to be invested. This results in higher industry average entry valuations. The second part to this is to look at comparable companies/industry exits. This enables you to make a judgement on what a potential exit scenario could look like. Once a company has an idea of a potential exit scenario it is possible to work back towards a present value.
  • Market size – The larger the market in which a company operates, the larger the potential growth and return to an investor.
  • Development stage – If the company is still an idea then it is unlikely it will get the same valuation as a company that has a product in the market with customers or user base or is post revenue.
  • Financing – Consider how many rounds of finance the business may need to reach an exit point is important. Good investors understand that companies should avoid giving away too much equity too early, so that the founders and the team are properly incentivised to stick with the business.
  • Unit economics – Many early-stage companies are not profitable. If businesses can demonstrate to an investor good unit economics for the product/service this will reassure the investor you can be profitable in the future.
  • The general economy – If the global/domestic economy is performing badly (i.e. during a recession), it is likely that there will be less appetite to be invested in a early stage companies as they are considered a high risk asset class. Hence it is likely, during these periods, valuations will be lower than if the economy was performing well.


Terms


One major point many early stage businesses disregard are the terms on which you raise capital. Perhaps a business can raise monies at a higher valuation but if the deal terms are not good (i.e. liquidation preference shares at a high multiple ahead of you), you will be better off taking the investment at a lower valuation.

Upside risk


A typical early stage investor or VC will makes the majority of their money on their best or best few exits. The hope is these investments deliver the big returns and cover the losses in the rest of the portfolio incurred from companies’ flat lining. Hence the bigger risk could be to not get in on a deal that turns out to have a large exit multiple.

Summary


Each individual investor will determine what makes a good investment. However, many investors follow believe that early-stage investment are all about the quality of the management team, the product and its future roadmap and the total size of the addressable market. The success of the company is heavily dependent on these factors and will determine the exit multiple you achieve.

As an early stage investor don’t get too hung up on valuation. Take a page from Warren Buffet's book.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

Happy investing.

The InvestDen team.

ISA’s now to include Crowdfunded debt

07 December 2015


Great news for investors, the government has built on their inclusion of peer-to-peer loans by allowing crowdfunding debt to be held in ISA’s.

The treasury has announced the “Innovative Finance ISA” which will launch in April 2016. This will allow crowdfunded debt commencing the autumn.

'The government believes there is a strong case for allowing crowdfunded debt securities issued by companies to be held in ISAs,' said the Treasury in documents published alongside the Autumn Statement.

'This will provide ISA holders with greater choice over how to invest and will support the crowdfunding sector to grow as a source of alternative finance for business.'

However due to the risks associated with early stage businesses, the government have held back on allowing crowdfunded shares in startups to be held in ISA’s.

'Several respondents argued that equity crowdfunding is currently less likely to meet [the government's] consumer protection principle than crowdfunded debt securities, highlighting factors such as uncertainty over investment returns, risks that shares are diluted in future funding rounds, and the lack of consistency over information provided to potential investors,' said the Treasury.

Whilst InvestDen strive to provide only premier deals to their investors which have gone through a stringent due diligence process, there generally remains a lack of transparency in the market. However, with time, as this improves, we believe equity crowdfunded shares will qualify for ISA inclusion.

The Government said it would work with the crowdfunding sector to determine whether these shares could ultimately be admitted to ISA’s.

The Yorkshire Building Society (YBS) suggests that around 405,000 ISA savers could choose to use crowdlending (P2P), as it becomes part of the ISA family in 2016. This marks a huge number of people entering into the crowdlending market.

The research, which was conducted this year, also highlighted two other key statistics;

  • More people are likely to start saving, with one in five (19%) of those who do not have an ISA being expected to open one. Bearing in mind that 22m people in the UK, 46% of the adult population (Gov.uk), have an ISA, this shows that Britain’s number 1 financial product is about to get even more dominant; and
  • Nearly one in four (23%) of the people who hold an ISA believe they will increase the amount they have in these.


Only one problem exists, the Innovative Finance ISA will only allow savers to use one crowdfunding site and still enjoy the tax benefit limiting choice and competition.

So make sure you choose your crowdfunding platform wisely and invest via InvestDen!

Happy investing.

The InvestDen team.

EIS and SEIS tax breaks and the advantages

28 October 2015


The Enterprise Investment Scheme (EIS) and Seed Enterprise Investments Scheme are initiatives formed by the UK government offering some of the most lucrative tax breaks globally. It is estimated that investments into this scheme amount to more than £1.6 billion and it will continue to grow at an exponential rate as the education surrounding the industry increases.

To qualify for these tax incentives you must invest in a small UK unlisted company. Small implies the company must have 250 employees or less, and maximum gross assets of £15m (prior to investment). The company cannot be quoted on a major stock market (London Stock Exchange) however it can be quoted on a smaller market such as AIM or ISDX.

Generally an investment in a smaller company is riskier than a blue chip investment. However the possibility smaller companies can grow rapidly from a small base provides an attractive upside to the investment.

Enterprise Investment Scheme (EIS) tax breaks

The UK government set up the Enterprise Investment Scheme in 1994 to promote investment into UK business and development. Today the scheme offers a number of attractive tax breaks:

  • Income tax relief of 30%. So if you invest £100,000 in a company that is EIS eligible, you can claim £30,000 off your income tax bill in the same year.
  • No capital gains tax on any profits you make from an EIS investment. So if you invest £100,000 and five years later sell your shares for £200,000, you’ll get the full benefit of the £100,000 profit.
  • Offset your loss on your investment against income tax. If say you lose your entire £100,000 investment, due to income tax relief, your actual loss is only £70,000 (£100,000-£30,000). So you can reduce your taxable income for the year in which you disposed of the shares by £70,000, resulting in a saving of £28,000 (40 per cent of £70,000) for a higher-rate taxpayer. If you want to offset your loss against other capital gains in the normal way, you can do this instead.
  • There’s no inheritance tax to pay on shares bought through EIS.
You must hold your shares for at least three years before selling them to be eligible for these reliefs. You must pay tax on any dividends, however the nature of the investment (small companies) doesn’t usually pay dividends. There are restrictions on the nature of the business you invest in; it cannot be a bank, a farm or a nursing home, for example. You may not own more than 30% of the company and you can invest a maximum of £1 million each year through EIS.

Seed Enterprise Investment Scheme (SEIS) tax breaks

The Seed Enterprise Investment Scheme is the latest scheme introduced by the government having been set up in 2012

It is a similar scheme to EIS but tailored for investing in even smaller companies, and providing even more generous tax breaks. SEIS has a few differences to EIS, lower limits of 50 staff and £200,000 gross assets are enforced. Businesses must also be less than two years old (there are no age restrictions under EIS). The tax breaks are as follows:

  • Income tax relief is 50%. So you get £50,000 off your income tax bill for investing £100,000 under SEIS.
  • Mirroring EIS, there is no capital gains tax to pay on profits, no inheritance tax, and you can claim loss relief in the same way. See above for details.
  • There is an extra relief called capital gains reinvestment relief. This applies if you have recently paid capital gains tax on other investments. You can reclaim up to 50 per cent of the tax paid if you reinvest that money into SEIS. (Originally George Osborne introduced this as a temporary measure, but in 2014 it was made permanent).


The tax reliefs available through SEIS are so generous that for the 2012/13 tax year, they added up to a potential 100.5 per cent of your investment in a situation where that investment was a complete failure. In other words, you literally could not lose provided you had paid enough tax to offset your SEIS investment.

However, for the 2013/14 and 2014/15 tax years this fell to 86.5 per cent – so you’ll get back £86,500 from a £100,000 investment that fails provided you pay enough tax to use all the reliefs. This still provides serious downside protection. The maximum you can invest through SEIS in any tax year is £100,000.

Many of the equity opportunities on the InvestDen platform are EIS or SEIS eligible. The eligibility of each proposition is clearly labelled on each individual opportunity.

Happy investing.

The InvestDen team.

How to monetise private investments

09 October 2015


Monetisation refers to converting a private investment into cash. This usually occurs via a liquidity event such as a dividend, trade sale or IPO. When Investors, ranging from Accredited Investors to Venture Capital or Private Equity Firms invest in a private company they expect to get their money back plus a specific return within a certain period of time.

Historically companies would, where possible, choose to access liquidity from the capital markets byways of "going public". However, Alternative Finance, Private Equity and Venture Capital markets have grown to the point that companies are able to raise sufficient capital for growth within the private markets. Consequently, companies are staying private longer. Staying private may have material benefits for the company but may prejudice the early investor if they are unable to monetise their investment.

Large companies such as Facebook and Twitter remained private well past the milestone $1 billion valuation. In the investment world a “unicorn” is a term coined to describe a private company valued in excess of $1 billion. Ten years ago the concept of a private valuation of $1 billion was almost unheard of, but today there are more than 100 companies within that category.

This has therefore created a problem to Investors. Liquidity. As Mark Cuban once said in reference to Private Tech Firms “If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it?"

InvestDen has addressed this issue with the "Investment Trader", our secondary marketplace. It is a forum in which InvestDen members can buy or sell private investments. Your private investment can originate from InvestDen, or any other credible source. Not all investments are approved for sale on Investment Trader, and each member must still undertake their own due diligence before deciding whether or not to invest, however, this tool adds a necessary function to the private markets. The ancillary benefits of this market may result in more confidence in the primary market which impacts access to capital for entrepreneurs and direct job creation.

We are proud to say that InvestDen was the first platform offering a secondary market for both debt and equity. On Wednesday 7 October the first trade was consummated on Investment Trader. A private equity investment deal was agreed between two of our members. With this milestone, we are one step closer to revolutionising finance.

Happy investing.

The InvestDen team.

Why Invest in a Start-up?

Investing in a start-up can offer you both tangible and intangible rewards.

18 September 2015


By investing in an early stage company you are supporting job creation and enabling entrepreneurs to achieve their goals.

There is no doubt that entrepreneurship has been the backbone of innovation throughout history. Through this Innovation, entrepreneurs have made immeasurable contributions to the enhancement of society.

We are privileged in the UK to have a government that supports business and understands the positive derivatives that arise from such support. Tax programs like the seed enterprise investment scheme (SEIS) have created a framework which alleviates some risk of a start-up's failure. The SEIS offers significant tax benefits for those investors who choose to support our countries brave leaders of commerce. Investors may be able to receive a tax benefit of up to 50% of their investment which could also be capital gains tax exempt.

A successful start-up could yield an investor significant multiples on their money if chosen wisely. These investments can also drive social benefit, disruption and progression of industry, and could also be fun!

When investing in start-up's, InvestDen provides some general tips for you to consider:

  • Understand the business- make sure you understand how the business works and the market it operates;
  • Look into the people behind the business - great people successfully execute ideas. We believe the people behind the business are critical to its success;
  • Diversify - most start ups do fail. Spread your investment across several startups;
  • Diligence - examine the unique selling points of the business, and asses the reasonable of the financials proposed;
  • Know your rights - understand the legals and what your rights and obligations are as a shareholder; and
  • Ask questions - engage the founders and ask anything.

    Happy investing!
  • Why Crowdfunding?

    Crowdfunding is quickly becoming a capital raisers first choice

    01 August 2015


    Crowdfunding is quickly becoming a capital raisers first choice, rather than the alternative method of finance. As such, some very interesting and high potential companies have turned to online portals to raise debt and equity to fund their business. A stigma formerly existed whereby some investors viewed those companies raising funds via crowdfunding as adversely selected, effectively meaning they had failed through traditional sources - but this simply is not the case. Business owners see a crowdfunding campaign as more than just access to capital and they are leveraging the ancillary benefits of a good campaign. A well planned campaign can bring significant PR benefits to the business and enhance brand equity. Furthermore, by offering an investment in your business to the “crowd” you are building a customer base, and likely allowing the end user direct access to your company. Investors like to support what they believe in, so if they use your product, giving them the chance to invest in your companies success rewards loyalty and nurtures the reciprocity of a balanced economy. Crowdfunding in this manner cuts out the intermediary and allows for direct engagement.

    As an investor, through crowdfunding you are able to access a plethora of unique and exciting opportunities. You are also able to diversify your investment portfolio by investing a small amount in any one opportunity thereby reducing your risk. Since the great recession there has been a movement where investors want to be more proactive in selecting their investments. InvestDen allows you to actively choose the investment you want to make and engage in full comprehensive due diligence on the company before you invest your hard earned money. In respect of diligence, some of the tools at your disposal on InvestDen which are can help you make an informed investment decision are; (i) a summary of the opportunity and market; (ii) financial forecasts; (iii) supporting documents; (iv) an opportunity to have a live video meeting with management; (v) an investor forum; and much more. As crowdfunding continues to emerge as a mainstream asset class it may be prudent for you to review the opportunities as part of any balanced portfolio.

    InvestDen Launches

    The InvestDen team brings you a revolutionary moment in finance.

    08 June 2015


    With great anticipation, InvestDen has launched UK’s newest and most exciting crowdfunding platform. 

    InvestDen is tribute to the constant improvement and evolution that is prevalent in daily life. The world of finance had not progressed to a state where it is transparent, easy to understand and cost effective - that is, up until now! 
    InvestDen makes raising capital, byway of either equity or debt;  safe, easy and efficient. 

    As an entrepreneur, we provide you with access to a huge network of investors who you can tap into for funding, for mentorship or to create a customer base.  

    As an investor, we provide you with access to brilliant business opportunities, across a variety of industries. 

    The InvestDen community connects, fosters and nurtures business. InvestDen is fully secure, safe to use, and its benefits are only limited by your imagination and entrepreneurial spirit. 

    We are a platform for the business community, and the ordinary citizen. InvestDen is the first step towards the democratisation of finance and offers the platform of the future. InvestDen has renewed, refreshed and revolutionised finance.

    We invite you to join our community and become an active member. 

    Welcome to the InvestDen.

    Warmest Regards, 


    Your Friendly InvestDen team. 

     


    Investments in any of the opportunities available on InvestDen carry risks. These risk include the potential loss of part or all of your investment, illiquidity, dilution, and lack of dividends. Investments of this type should only be made as part of a diversified portfolio. InvestDen is suitable exclusively for investors who are sufficiently sophisticated to understand these risks and make independent investment decisions. You will only be permitted to invest through InvestDen once you become registered as sufficiently sophisticated.


    Please click here to read the full Risk Warning.


    This page is communicated by Clasp Investments Limited ("Clasp"). This page has been approved as a financial promotion by Clasp Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Investments can only be made on the basis of information contained in the pitches by the business concerned. Neither Clasp Investments Limited nor the InvestDen take responsibility for this information or for any recommendations or opinions made by the companies or within their investment pitch.