Hugh James LLP – top tips on preparing for new investment
Top Tips – preparing for new investment
The recently established Welsh Life Science Investment Fund will make £100,000,000 of new funds available to life science businesses.
If you are considering new investment, we have set out below, based on our experience of advising on numerous investments, our tips on how to prepare for investment
1. know your market
Investors will look at market trends.
Investigate your market to help with the creation of your business plan. This will also provide an idea of the investment you should be targeting.
2. viable business plan
Investors will want to see where their money is going.
Developing a professional business plan will be a key part of your pitch for investment. Key areas include:
- how you will develop and exploit your idea;
- the capability and experience of your team;
- the value of your business; and
- how a healthy return on investment will be achieved.
Be realistic or you will put off investors. You will give assurances to the investor on the accuracy of the plan. If it not accurate, there could be recourse against you.
3. provide an exit
Investors will invest with an exit in mind! A return is usually expected within five years of investment.
Consider and set out a clear exit path, whether by trade sale, going public or otherwise.
4. investors will expect your businesses to be investment ready
- Register any Intellectual property (IP). If held by individuals, transfer IP to the Company
- Share ownership correctly recorded
- Contracts with Key employees – restrictive covenants and IP creation provisions included
- Resolve any ongoing litigation/disputes
5. negotiate term sheet
The investor will produce a terms sheet setting out the key terms upon which it is willing to invest.
Consider the term sheet with your advisors as these terms will be the terms included in the legal documentation you will be required to sign. Early negotiation of the term sheet can save further costs and time.
6. control of business
Investors will expect an element of control of your business.
Be prepared to provide the investor:
- consent for key issues;
- right to appoints its own director;
- right to oversee/ approve budgets, annual business plans; and
- control over transfers/issues of new shares.
7. personal assurances
Investor will require management to give personal assurances:
- Information given to investor is accurate;
- Accuracy of accounts and business plan;
- Ownership of key assets, e.g. IP.
8. full disclosure
Before investing, an investor will carry out full investigation into your business.
This will be time intensive; however it will be in your interest to dedicate time and resources to respond to these investigations as fully as possible.
Your solicitor should use your responses as a protection to ensure that an investor cannot bring subsequent claims where it relates to information provided in the responses.
9. satisfied with terms
Investors will expect negotiation on its standard investment terms
It is your business – make sure that you are happy with the terms of any investment and that you have retained a level of control that you are satisfied with.
If you have any queries or wish to discuss any of the issues above please contact:
Greg Williams, Partner