Dernière modification le 01/07/2022 à 15:30 par Kate Griss

by Erwan COATNOAN DE KERDU

Intangible Capital Value

Our core business: intangible capital valuation

Your fundraiser by step

1: Preparation

Convincing investors to finance your project cannot be improvised. Before contacting them, it is therefore important to be prepared. The pre-requisites are the following:
– Update your website,
– Identify the experts who will accompany you (possibly a fundraiser). Business leaders who have experienced fundraising are often good advice. They have the advantage of being disinterested in your fundraising,
– Write and prepare the various documents for the fundraising:
-Executive summary: summary of the file, which is used to present the project and allows investors to assess the feasibility, credibility, and potential of the project,
-Slide show or pitch: you must have prepared and tested it orally with a maximum of “competent” people,
-Business plan: detailed presentation of the project and financial statement tables,
-Due diligence documents (Wikipedia definition: Due diligence is the set of verifications that a potential buyer or investor will perform before a transaction in order to get a precise idea of the situation of a company),
-To have a demonstration of the offer,
– To have customer references that can be contacted,
– To have an idea of the valuation of the company (with or without the help of experts),
These elements must allow you to reassure and make people want to follow you.

2: Targeting investors and the approach phase

Once you have these prerequisites, you can go out and meet investors. To do this, there are several steps to follow:
– Establish a list of target investors to contact: select the investors according to their criteria and the stage of development of the company. This requires an investigation to know the sectors of interest and the stage of maturity of the companies in which they invest (see Sheet 6),
– Send the executive summary to the selected investors, then the business plan to those who show an interest (Attention: the signature of a confidentiality agreement should not be a blocking step for you, (see Sheet 9 of our “Guide to raising funds”),
– Participate in events where you present your projects to investors,
– Organize one-on-one meetings with investors who want to go further. The first meeting is often decisive. An expert can help you get through this first eliminatory step. Getting an initial response from the investor is relatively quick; it takes between two weeks and a month. If the answer is positive and after several meetings, you enter a longer phase of analysis, project study and due diligence.

3 : Project analysis and due diligence

Once you have reached an agreement on the investment outline, the investor begins the due diligence. It starts before you have reached a final agreement and generally before the investor has signed a letter of intent, also called “Term Sheet”.
The due diligence consists for the investor to make checks to :
– Validate the estimated profitability in case of success (notably on the management team, the potential of the project, the study of the sector),
– Identify the risks associated with the investment.
During the study of the file, all areas are scrutinized: legal, financial, industrial property, market, products and team. Customers and suppliers may also be solicited. The investors will “dig” into all aspects of the company, checking that there are no “wolves”, that what you have said during presentations or in your documents is accurate…
The risks that will be evaluated are :
-Dependence on key people,
-Technological risks,
-Industrial protection risks,
-Environmental risks,
-Commercial risks,
-Legal, social and fiscal risks,
-Financial risks: accounting audit of financial elements (balance sheet…).
The duration of the due diligence depends on the type of situation encountered (generally between one and several months). Generally, it is divided into a first phase of “light” project study, during which the investor checks a certain number of general points by himself, and a “heavier” phase for which he can mandate specialized consultants to validate specific points.
This heavier phase can be reduced in the case of modest fundraising, given the costs associated with these audits.
You should know that this phase also allows the investor to get to know you by working with you. On your side, take advantage of this phase to validate your “affectio societatis” with the investor (the “affectio societatis” is the “good feeling” you get when you work with someone else, it is the desire to collaborate with him or her over time).
This phase is marked by committee meetings, which validate the passage to the next stage. The number of successive committees varies according to the structures, but they are generally of two types:
-A first internal selection committee,
-Then a commitment committee made up of the investor’s subscribers.

4 : The letter of intent

In case of a favorable decision to continue and enter into more detailed negotiations, the investor drafts a letter of intent (or “Term Sheet”).
This document specifies the conditions of his possible intervention: valuation of the company, financial conditions, legal conditions and main clauses which will be in the shareholders’ agreement… If you agree to countersign this document, a new negotiation starts to finalize the valuation and to draft the agreement.
The “lead investor” is, in the case where you have several investors in the round, the one who will orchestrate the discussions; it is often either the most organized, or the one who invests the highest amount, or the one who agrees to take the first position to trigger the interest of the others.

5: Financial negotiations

The financial negotiations concern several aspects:
– Valuation. There are more or less complex methods for calculating this valuation (see Sheet 12). You can be accompanied, but the final valuation is above all the result of a negotiation (according to the law of supply and demand…),
– The capitalization and capital evolution table, with possible mechanisms for readjusting the value, as well as incentive systems for employees (see Sheet 14),
– The exit conditions for investors.

6 : Legal negotiations

The entry of investors in the capital is also accompanied by legal negotiations on :
– The modification of the company’s articles of association,
– The drafting of the partners’/shareholders’ agreement.
The agreement is the document which governs the life of the future partners (in the case of a SAS) or shareholders (in the case of a SA). Its objective is to foresee a maximum of situations in the life of the company, and the challenge is to find a balance between the defense of the rights of the investors, the defense of the rights of the historical shareholders, and the interests of the company. This negotiation stage can also be quite long.

7: The closing

The “closing” concerns the moment when the financing is realized by the investor. It is done on the occasion of an extraordinary general meeting that must be convened, and during which the shareholders’ agreement is signed. Beforehand, you must open a bank account for the capital increase. The preparation of this closing requires unavoidable legal delays (from 15 days to 3 weeks notably for the convocation, and often for the intervention of an auditor).

8 : Subsequent steps

Following the fund raising, the investors become partners/shareholders of the company. As such, they participate in the company’s general meetings and have the rights provided for in the articles of association and the pact.
The collaboration ends when the investors leave the company, by partial sale (sale of the investors’ shares) or total sale of the company (in the case of an industrial sale, the sale must in general be total, which obliges you to sell your shares).

The timetable of a fund raising operation – Indicative deadlines

-1st step : Preparation of the documents and the pitch : 3 months
-2nd step: Meeting and discussion of the project: 3 to 6 months
-3rd step: Negotiation and finalization of the deal: 3 to 5 months

The factors that can influence these deadlines are the following:

– 1st step: availability of the managers,
– 2nd stage: reactivity of the investors and capacity of the managers to provide the necessary documents and information to the investors. At this stage, investors often take time before making a decision. This allows them to see how the management team behaves, to know if other investors are interested, etc,
– Step 3: Number of rounds during the negotiation.

In summary

Raising funds is a very codified process, which is organized in well established successive phases, each of which can last longer, either because of you or because of the investor.
Investment funds spend a lot of time managing their holdings, and analyzing several projects in parallel for an investment. They are very solicited and can only give a short time to each file, which amplifies the duration of finalization of a fundraising. Negotiations can be even longer if you have several investors around the table, with different interests and constraints to reconcile. It is therefore important to anticipate these delays, and to prepare the fundraising as well as possible, in order to reduce all the steps that depend on your preparation.

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