At our last tech breakfast seminar “Exploring the journey of raising a seed to Series A round to exit”, we discussed:
and here (drum roll!) are our 7 takeaways from the same:
- Use your cap table as a tool. Actively manage it, ensure it contains all your shareholders (and any promised equity), the class of shares they have, their % shareholding, the rights attaching to those shares (including preferential returns), any option pool and, at a glance, reflects who has control at shareholder level, who your strategic investors are and how any proceeds of sale would be distributed. It will become increasingly complex as the company grows and while as a founder you should seek advice on it, we would strongly encourage you to maintain this yourself.
- Keep a data room. So you are ready for a due diligence exercise pre-funding round or exit. This just means keeping all the company records (employment contracts, consultancy agreements, shareholders’ agreement, articles, any side letters, cap table, key commercial contracts, option agreements, annual and management accounts etc) all in one place and in final form. This will make the process much more straight forward when you come to a due diligence process. These are time consuming and painful enough as it is.
- Prepare in advance of any funding round or exit process. Deal with any dark clouds before going into the process. The points that crop up often are around ownership of IP, promised equity, director or shareholder loans, company books (register of members, register of directors, PSC register) not being up to date, filings at Companies House being incorrect, unsigned key commercial contracts (or worse, undocumented relationships), etc and later on in the life of a company, invalid share buybacks, unlawful dividends being paid and shareholder or founder disputes. Deal with any of these before you go into a process.
- Start thinking about your exit early. Not because you necessarily will exit early, but so that you have thought about your route to market, are building relationships with likely acquirers and investors continuously and looking at the business every once in a while through an acquirer’s eyes. What financial metrics would they be evaluating? Are you meeting them? Are you spending your time on the right priorities? Do you need more help or expertise at senior or board level? Could this business run without you there day to day as a founder?
- Craft your equity story. Always have sight of your story – what is unique about your scale up, what’s your market, what traction do you have, who are your competitors and why are you distinct, why is your team the right one to execute the business, why is it the right time, do the steps you have taken support this vision in practice, and do your financials support the same? Investors and buyers will scrutinise your financials and focus in on different aspects of the same depending on the sector and stage you find yourself in. This will all be used to justify your valuation or purchase price, so always have it in mind.
- Keep abreast of the market you are in. Is it the right time to go to market? This can influence investor and buyer appetite and valuation (albeit this will not always be within your control).
- Take advice early. We would say this (!) but early corporate finance and legal advice can identify and, more importantly, cure issues before you raise or run a sales process, maximizing the likelihood of a successful raise or exit.
Let us know if you think we have missed any key takeaways or considerations!
You may also be interested in this blog series – Lifecycle of a Tech Startup Series | Corporate and Commercial Law Blog | Kingsley Napley
And this blog from our previous tech breakfast seminar Why does software ownership matter? Six key legal takeaways for tech businesses | Corporate and Commercial Law Blog | Kingsley Napley
