FAQ'S
SWAIN frequently asked questions
SWAIN is widely regarded as one of the most active Angel Networks in the UK. As an introduction to the way in which we work, we have set out below a series of responses to those issues which are raised most frequently by investors and entrepreneurs alike.
We hope that you will find this document helpful.
From businesses seeking to raise equity finance:-
Registration process
The company registration comprises four stages: contact information; profile; engagement agreement and finally director's declaration.
Naturally contact information is principally that information that we will use to contact you.
The profile helps us to get a very quick understanding of the business and how much you are looking for. In practice at the registration stage this provides us with background information when we contact you. If we agree that you should progress through the process then we will ultimately rely on the business plan and in the first instance the executive summary which should always be provided in electronic form (via email).
The engagement agreement is a legal agreement between SWAIN and you. It only needs to be signed once and the process provides for electronic signoff. You will be sent an email that provides the full content of the agreement between us and you also observe a link to a PDF version of the engagement letter which is more suitable for printing out.
The director's declaration will require you to answer a series of questions that relate to both the company and the director's personal activities. It is important to understand that any investor looking to invest in your business will be likely to ask similar questions. Naturally these will be kept confidential.
Evaluation process
The first stage in the process is for a Business Plan to be sent to us. In our experience the most effective format is for the plan to be no longer than 25-30 pages, and to contain a two page Executive Summary. Financial projections incorporating profit, cash and balance sheet statements are highly desirable. We are happy to receive Draft plans and require them to be sent electronically.
Non-disclosure agreements and Engagement Letters: We are quite comfortable in entering into NDAs. We always use our own simple but mutually binding NDA. We believe that it is reasonable for our client businesses to enter into the same obligations as ourselves (we do provide very valuable introductions). Our preference is to formalize the arrangement between us as soon as possible and we therefore ask client businesses to sign a standard Engagement Letter as early as possible in the process. In this way both parties commit to a structured and transparent process which is set out clearly and simply.
The enquiry will be passed to the most appropriate Investment Manager who will carry out a Desk Appraisal of the opportunity. An early decision is made as to whether or not SWAIN wish to progress with the proposal. Initial feedback is given. There is no charge for this early review stage.
Assuming that SWAIN wish to progress the opportunity, the second stage involves a more detailed Evaluation usually involving a meeting and often at the client’s premises. There is a cost of £125 + VAT (correct as at 1 April 2010). Feedback is always given by e-mail.
SWAIN may then offer an opportunity to present at an Expert Panel. Typically the panels are comprised of three or four panellists drawn from an active Business Angel, an Accountant with specific Corporate Finance experience, a Corporate Lawyer (often with IP experience) a Corporate Banker and a Marketing Consultant. Businesses who are seeking input on how best to shape their proposal or are perhaps uncertain as to the best way to approach their addressable markets often obtain significant benefit from this process. There is a cost of £75 + VAT (correct as at 1 April 2010). Feedback is always given by e-mail.
Again assuming that discussions are positive, the Investment manager will then put the proposal to SWAIN’s Cases Committee which decides which Businesses to introduce to potential investors and by which channel (see below).
Opportunities are introduced in one of two ways:
1) They are listed on our website (for a finite period of time) and included into a series of regular Updates which are circulated to potential investors.
2) In addition to (1) above they present a 12 minute ‘pitch’ at one of our Introduction Forums.
SWAIN Introduction Forum
At each event between three and six companies each give a short presentation which provides the basis for an in-depth question and answer session. Typically each company has half an hour in total to introduce their company to investors.
Events which are held in the southern region of the SW e.g. Cornwall, Devon, Dorset and Somerset tend to start at 3 - 3.30pm while event held in the northern region of the SW tend to start at 10.45 am. We ask companies to arrive approximately 30 minutes before the event is due to start to allow time for set up.
The presentations are followed by a networking session of approximately one hour when individual investors can have more detailed discussions with the businesses who have presented.
Our most frequently used location is Clevedon Hall which is just off J20 of the M5. It is favoured because of its excellent function rooms and together with ample car parking, please see Resources for directions.
We shall require:-
- Short Summary (limit 150 words) ideally 10 days before the Forum date;
- One page summary
The short summary should be close to the summary provided on this website as part of the registration process. The one page summary will replace the full profile that you also provided as a part of the registration process. In practice businesses will usually want to reshape both the short summary and the one page summary from the information that was used as part of the evaluation process. It is also important to note that both summaries as presented to investors should be anonymised.
Investors will always seek:-
You should also consider preparing:
- A Non-disclosure agreement;
- An Information Bible (typically a lever-arch A4 binder containing such items as:-
- Copies patent applications;
- Management accounts;
- Statutory accounts;
- Supporting assumptions and calculations underpinning financial projections;
- Market research materials;
- Copies material commercial contracts;
- Copies leases;
- Memorandum and Articles of association of the Company;
- Copies of Employment contracts;
- Board minutes;
- Taxation, VAT, NI and PAYE correspondence;
- Insurances;
- Copies bank facility letters;
- CVs of key management team members;
- Organization chart;
- Details of any litigation;
- Pension details;
- Etc.etc.
SWAIN Dry Runs
In order to ensure that your presentation is as effective as possible we require business who are presenting at a SWAIN Forum to make a Dry–Run presentation between 10-7 days prior to the event itself. In our experience this is a particularly valuable exercise. There is currently no charge for this service.
Summary of fees:
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Desk appraisal
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Free
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Evaluation (including meeting and feedback)
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£125 + VAT
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Expert panel (optional)
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£75 + VAT
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Either Introduction by Update and Website
OR
Introduction at forum plus Update / Web
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£300 + VAT
OR
£450 + VAT
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Success Fee
For all amounts
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4% of investment (min £1000) + VAT
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Note: For subsequent funding rounds within the time period specified in the engagement letter, in most cases there will be no additional charge for evaluation. There will however be a charge of £300 to be re-introduced to the network. The success fee of 4% remains the same, although there is no minimum investment.
This question is impossible to answer. ‘Gun to tape’ times have ranged from less than a month to over a year!!
Investment Readiness (IR) must be one of the most widely interpreted and least understood phrases in common use today. At its simplest it is the process whereby businesses prepare themselves for the presentation, evaluation and negotiation cycle which leads to an equity investment.
Businesses who have prepared thoroughly and taken professional advice in advance of the process are likely to benefit in the following ways:-
- The preparation will manifest itself in a focussed, elegant pitch concentrating on relevant investor-orientated issues;
- A strategy for negotiating valuation will have been devised;
- The Due Diligence process will be easier and shorter;
- The investigations and negotiation processes will be more structured
- The likelihood of deal being completed will increase.
The best IR advice is provided by the professional community operating either through the Corporate Finance divisions of Legal and Accountancy practices or occasionally as independent Corporate Finance Boutiques. We will be pleased to introduce you to leading organizations with whom we have either worked previously or know of as recognized exemplars in their field (our preferred style is to recommend at least three alternatives and suggest that you work with organization with whom you feel most comfortable). There is no charge for this service. Alternatively we can refer you to an intermediary such as the regional Investment Readiness Service (provided by the Business Links) which acts in a brokerage capacity.
We have produced the SWAIN Guide to Investment Readiness which has been highly acclaimed, and provides an excellent summary of the issues. This is available either as hard copy or downloaded from our website.
An excellent book which we would also recommend is The New Business Road Test by John Mullins (Financial Times publication).
Financial Services Act
No précis on this topic would be complete without reference to this legislation. It is vital to take professional advice on this matter. It can be a serious criminal offence to promote investment opportunities in an inappropriate way.
Critical Success Factors in attracting Equity capital
A successful company will always have more than half of the following attributes:-
- Strong and experienced management team
- Strong defendable strategic assets
- Strong USP
- Sells into a growth sector
- Is scaleable, commercial and realistic
- Has well researched and demonstrable market demand
- Already generates revenues
- Offers a ’must-have’ rather than a ‘nice-to-have’ product
- Produces high profits and strong cash flows
- Is committed to a credible exit strategy
- Offers its customers a strong value proposition.
Most Common mistakes
Not allocating sufficient time or energy to what is often a very debilitating, frustrating, energy-sapping and time consuming process;
- Skimping on professional advice fees;
- Not following investor interest up quickly and enthusiastically;
- Lacking real commitment to investigating, formulating and executing a realistic exit strategy;
- Seeking an investment at an unrealistic valuation
- Taking an unstructured approach
- Underestimating the whole exercise
What do deals look like?
- The typical equity holding is in the region of 20%
- The typical valuation (post money) of a business is less than £1m
- The mean equity content is approx. £120,000
- Most businesses raise their cask as a mix of equity and loan capital
A few final thoughts…
If after having read and objectively considered all the gloom and pitfalls above, you still feel that you would like to progress with an equity solution do remember:-
Equity is not a soft option, it’s certainly not easy to obtain and it’s definitely not cheap.
If you’re still interested and think that you’ve got what it takes – we’d like to meet you.
Investor Registration
The investor registration is made up of four main components. These are: contact information; investment profile; engagement agreement and finally self-certification.
Naturally contact information is principally that information that we will use to contact you. Most of our communications to you will be via email, although we will often call you to remind you of forth coming events. We are also making more use of texts as an automated reminder. Companies will be normally be given your email and address as the first point of contact once you have requested further information.
The investment profile helps us to understand the sort of businesses you are interested in. You will always receive summary information on all the businesses that are being introduced via email, but the more specific information helps us to determine for instance whether you might be interested in a “sector specific” event. We naturally keep all this information confidential.
The engagement agreement is a legal agreement between SWAIN and you. It only needs to be signed once and the process provides for electronic signoff. You will be sent an email that provides the full content of the agreement between us and you also observe a link to a PDF version of the engagement letter which is more suitable for printing out.
Since March 2005 'The Financial Services and Markets Act (2000)' makes it a legal requirement that Business Angels wishing to receive promotions from firms must be self-certified as either high net worth individuals or sophisticated investors. In order to safeguard both the interests of our investors and investees SWAIN will only make introductions to investors who have provided a signed certificate. The certificates are only valid for one year so please re-certificate when you receive a reminder on the main page of your SWAIN account. If you have any concerns about the implications of self-certification, then you are advised to take professional advice. To self-certificate online you must firstly indicate whether you are a High Net Worth individual or Sophisticated investor.
Once you have completed the website registration process then one of the Investment managers will contact you. In the first instance he will have a discussion with you by phone to answer any of your questions and to gain further understanding about your background and the sort of opportunities you are seeking. We will ask you for a reference, which we are more than happy to pick up verbally via a telephone call. In most cases investors put us in touch with a lawyer or accountant who they have used for recent transactions. The main purpose of the call is to set up a meeting. It is helpful, although by no means compulsory if you can provide us with a CV.
Once we have been through this process then assuming you still wish to become a member of SWAIN you will be invited to join the network. Once you have settled the £180 enrolment fee then you will enjoy full access to the website and will get the chance to attend our Introduction forums and other “investor only” events.
Whilst in most cases we are likely to meet at numerous SWAIN events during the year, we also feel it is important to meet our investors formally for an annual review. This allows us to discuss your view on our performance and to make any suggestions that might improve our service to you. You may also wish to make us aware of changes in your circumstances or to provide feedback on your investee companies. There is an annual fee associated with the review of £90.
It is also important to remember that the self-certification needs to be renewed on an annual basis.