By Sandi Gilbert CrowdFinance Advocate | Collaborator | Influencer | Speaker | Curious Adventurer,
So you’re ready to access new capital to grow your business. Do you know what it takes to successfully raise capital? It takes more than just a good idea and a good story. You’ll need to be fully prepared. You must comply with securities regulations, corporate governance and present your investment opportunity in a clear and transparent way. Here are some steps to consider as you prepare your pitch.
Is your business incorporated? Do you have the appropriate articles to support issuing shares in your company? Do you have a board of directors (including some independents) or an advisory board? As they say – you need to get your business affairs in order prior to reaching out to the public for investment. You’ll also have to consider the type of shares you are offering and the amount of equity you are offering for the investment.
Investors will have to complete documents including subscription agreements, risk acknowledgement forms and validate their qualifications to invest in your offering. Fortunately, we provide online execution of these documents, making it an efficient and compliant environment to raise capital. Be sure to seek the appropriate legal and financial professionals to help you organize your fundraising.
Compliance – Securities Regulations
SeedUps Canada is a CrowdFinance platform. That means you raise money in exchange for shares in your company. Selling securities is regulated by the various securities commissions in Canada and companies raising capital on the SeedUps platform must offer their securities under one of the following prospectus exemptions:
- Offering Memorandum (OM) Exemption
- Accredited Investor (AI) Exemption
The Offering Memorandum Exemption
The Offering Memorandum – Form 45-106F2
In Canada, private companies can raise capital from the public – meaning the Crowd – through an Offering Memorandum (OM) exemption. The OM is a document that provides information about your company and the shares you are offering to investors. The document contains disclosure about:
- the business of the company,
- the company’s financial and material facts and contracts,
- the directors, management and promoters,
- the securities offered,
- the risks of the investment, and
- how the money will be used
It is a legal document of a prescribed format that gives rise to significant legal obligations on the part of your company. Like any other important legal document, it should be prepared with the assistance of an experienced securities lawyer who has a thorough understanding of your business. We’ve created an OM template that you can review and complete so you are well prepared prior to engaging legal counsel, often times resulting in reduced legal fees.
Risk Acknowledgement Form 45-106F4
Each investor must complete a Risk Acknowledgement Form that accompanies the OM. We have sample forms for you to discuss with your legal counsel.
Each investor must sign a Subscription Agreement that forms part of the OM. We have a sample subscription agreement for you to discuss with your legal counsel.
The Offering Memorandum must include audited financial statements prepared in accordance with Canadian GAAP or IFRS for publicly traded companies. If your company is located in Alberta and you are only looking to raise up to $500,000 in capital, you have the option of offering your securities under a Blanket Order (OM Blanket) whereby the financial requirement is relaxed to allow for non-audited financial statements that are prepared in accordance with Canadian GAAP or IFRS applicable to private enterprises.
The Accredited Investor Exemption
The Accredited Investor Exemption gives a company the ability to raise capital from high net worth individuals. These investors are deemed to be sufficiently knowledgeable of investment matters therefore do not need the protection of securities legislation.
Only 3% of the Canadian population qualifies as an accredited investor, so pitching your company’s offering to this limited audience may not be your best approach. Although the disclosure required in this type of offering is much less than that of an OM offering – the potential of a successful offering may also be reduced.
Is an offering document required?
No, there is no requirement to prepare and present an OM for an offering made to accredited investors. Most companies will prepare a document that has pertinent information about the business, its market and competitive advantage. While there is no requirement or prescribed format for an offering document, potential investors will want to understand enough about your business to make an investment.
Risk Acknowledgement Form 45-106F9
Beginning May 5, 2015 all accredited investors must also complete a Risk Acknowledgement Form. We have sample forms for you to discuss with your legal counsel.
Each investor must sign a Subscription Agreement that clearly quantifies how the investor meets the accredited investor standard. We have a sample subscription agreement for you to discuss with your legal counsel.
Waverley Corporate Financial Services Ltd (Waverley) is a registered Exempt Market Dealer and handles all securities related activity on the SeedUps Canada platform. Waverley has an obligation to understand the structure, features and risks of the securities offered by your Company. As part of due diligence, we will gather certain documentation to present to Waverley including:
- Background checks on key Officers and/or Directors
- Certificate of Incorporation or Partnership Agreement
- Underlying Organizational Documents (Articles of Incorporation, relevant shareholders’ agreements, employment contracts, etc.)
- Detailed Business Plan
- Detailed Pro-forma Projections
- Investor Deck
- Pre and Post Financing Capitalization Tables, and
- Other supporting documents
How do you know what your company is worth? It’s a challenge for early stage companies that may be pre-revenue or just going to market. At SeedUps, we have an alliance with Equidam, a platform for business valuation that allows you to better estimate your future and compare your company with others. Your company valuation is computed using 5 different quantitative and qualitative methods based upon your input and the best financial data available.
It’s free to generate an executive summary and SeedUps referral companies receive preferred pricing for an annual subscription with Equidam, where you can download the full 16 page document at every stage of your company’s development.
A video pitch is a powerful tool for you to communicate your investment potential in a succinct and compelling manner. It will help bring your business to life, show that you are serious and add credibility to your pitch. You don’t need to be a professional videographer to make a short video these days and by doing one you will surely increase your chances of success.
A presentation deck that succinctly describes the investment opportunity and why an investor should be interested can help market your opportunity. You should ensure that the information in your presentation is consistent with the information provided in your offering documents.
Media and Press Releases
If your company has be recently covered in the press – we can post links that can be shared with our investors.
We’ll work together with your team to prepare a marketing plan that will include social media, email marketing, blogging and events. To learn more about preparing for your pitch – ask us for our Pitch Checklist.
If you do not have any of the Required Disclosure Documents prepared, you will incur professional services fees to prepare and present the documents. Although the fees can vary relative to the preparedness of the company, the complexity of the business and the choice of professional firms, we would suggest that these fees can range as follows:
- Accounting – $2,500 to $10,000
- Legal – $2,500 to $15,000
These fees are generally required to be paid prior to the capital raise, so your Company should be prepared for such costs.
If you comply with all of the requirements to present your offering on the platform and Waverley signs off on due diligence, your Company will incur an onboarding fee payable to SeedUps Canada and a success fee of 5% payable to Waverley at the time of closing (when you get your money).
Financing your company’s growth is now possible through CrowdFinance. Are you ready – we can help.
Have you already found your investors? The SeedUps platform has all the tools you need to execute your private capital raise quickly and accurately. With our platform, companies, securities lawyers and other advisors have an integrated solution that makes it easy to move the capital raise online. Ask us about Paperless Paperwork.