Getting investor ready

An investor-ready company has a pitch deck, a financial forecast that matches it, a data room holding every document the investor’s lawyers will ask for, articles and a shareholders’ agreement that fit the round, and a cap table with no loose ends. Fix these before you approach investors, because problems found in due diligence cost time and can cost you on price.

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The pitch deck

The pitch deck is a short set of slides that an investor reads before deciding to meet you. It says what problem the company solves and for whom, what the product does, how large the market is and how you worked that out, what progress you have made, who is in the team, how the company makes money, how much you are raising, and what that money will achieve, set out as a short budget.

Every number in the deck has to match the forecast and the accounts. Revenue in the deck that does not appear in the management accounts will be the first question in due diligence. Use actual figures, label forecasts as forecasts, and give the source for any market size you quote.

Keep a version you send and a version you present. The one you send has to make sense without you in the room. An invitation to invest is a financial promotion, so check with your lawyer before the deck goes beyond people you know, or use a regulated network or crowdfunding platform that approves it.

The data room

Certificate of incorporation, current articles and any shareholders’ agreement
Register of members, register of directors, and every filed SH01 and confirmation statement
A cap table on a fully diluted basis, with every option, warrant and convertible loan
Statutory accounts, monthly management accounts for the current year, and the forecast
Corporation tax, VAT and payroll records, and any SEIS or EIS advance assurance or compliance statements
Employment contracts for founders and senior staff, and any share option agreements
Intellectual property assignments from founders, staff and contractors, and any registered trade marks or patents
Main customer and supplier contracts, leases, loan agreements and any charges registered at Companies House

Set it up in a shared folder with access you control, and have it complete before the first investor meeting.

The financial forecast

Build a forecast for three years ahead, monthly for at least the first, from assumptions you can explain: how many customers, at what price, won at what cost, served at what margin, and which hires you make and when. The profit and loss, cash flow and balance sheet should link, so a change to one assumption moves all three.

The forecast shows how long the money lasts. Mark the month the cash would run out if sales came in at half the plan, and the milestones the round will pay for. An investor will test both.

Keep the spreadsheet clean: assumptions on one tab, no numbers typed into formulas, and the last twelve months of actual figures alongside the forecast. The investor’s accountant will open it during due diligence.

Three years ahead, monthly for the first
Profit and loss, cash flow and balance sheet linked
Assumptions on one tab
Actual figures alongside the forecast

Shareholder agreements and articles

Model articles: A company that adopted the default articles under the Companies Act 2006 when it was formed has nothing on share classes, investor rights or leavers. An investor will expect new articles.
New articles: Adopted by special resolution, needing 75% of the votes cast. They set the rights of each class of share, pre-emption on new issues and transfers, drag-along and tag-along, and leaver provisions.
Shareholders’ agreement: Investor consents, information rights, founder commitments such as restrictions on competing, and how disputes are settled.
Founder agreement: If the founders have nothing in writing between them, agree it before the round: who owns what, who does what, and what happens to the shares of a founder who leaves.
Pre-emption rights: Section 561 of the Companies Act 2006 gives existing ordinary shareholders the right to be offered new shares first. A round needs either their waiver or a resolution disapplying the right.

Cleaning up the cap table

The cap table lists every shareholder, the number and class of shares each holds, and everything that could become shares. It has to agree with the register of members and with the filings at Companies House. Every allotment needs a return of allotment, form SH01, within one month under section 555 of the Companies Act 2006, and the confirmation statement records the shareholders. If a past allotment was never filed, file it now, before an investor’s lawyer finds the gap.

Look for the problems that hold rounds up: a co-founder who left with a large holding and no leaver terms; shares promised to an early adviser or employee by email and never issued; options granted without a written plan or an HMRC notification; convertible loans with terms that have not been checked against the new round; shares held for someone else under an informal arrangement.

Each fix takes time and may need the agreement of the people concerned. A departed founder may agree to sell shares back or sign updated leaver terms. An adviser owed shares can be issued them or offered options. Agree each one before you start the round, with a lawyer documenting it.

Before you send the deck

Advance assurance

If investors will claim SEIS or EIS relief, apply to HMRC for advance assurance before the round.

Intellectual property

Make sure the company owns the code, designs and brand, with signed assignments from founders and contractors.

Filings up to date

Accounts and confirmation statements filed on time at Companies House, and no overdue tax returns.

Your own position

Review any personal guarantees on company borrowing, and set up director pension contributions before investor consents apply to pay.

Questions people ask

What should be in a pitch deck?

The problem and who has it, the product, the size of the market and how you estimated it, the progress so far in numbers, the team, how the company makes money, the competition, the amount you are raising and a short budget for how it will be spent. Every figure should match your forecast and accounts. Keep the version you send readable on its own, without you there to explain it.

What is a data room?

A shared folder holding the documents an investor and their advisers need for due diligence: the company’s constitution and registers, Companies House filings, the cap table, accounts and forecast, tax records, employment and option agreements, intellectual property assignments and the main contracts. Having it ready before the first meeting means the investor’s lawyers ask fewer questions, and shows the company is run in order.

What is a cap table?

A capitalisation table: a list of every shareholder with the number, class and percentage of shares they hold, plus every option, warrant and convertible loan that could become shares. Investors read it on a fully diluted basis. It must agree with the company’s register of members and with the allotments filed at Companies House.

Do I need a shareholders' agreement before raising investment?

The round will produce one, drafted by the investor’s lawyers or yours. What you need beforehand is an agreement between the founders, covering who owns what and what happens to a founder’s shares if they leave. Without it, a dispute between founders can stop a round, and investors will ask for leaver terms as part of the deal.

What do investors check in due diligence?

The accounts and forecast against the bank statements, the tax position, the cap table against the Companies House filings, ownership of intellectual property, employment and customer contracts, any borrowing and charges, and any disputes. They also speak to customers. The company answers through a disclosure letter, listing any exceptions to the warranties it gives in the subscription agreement.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

All business funding

Getting investor ready

The pitch deck

The data room

The financial forecast

Shareholder agreements and articles

Cleaning up the cap table

Before you send the deck

Advance assurance

Intellectual property

Filings up to date

Your own position

Questions people ask

Equity investment

How much equity should I give away?

Advance assurance for the seed scheme and EIS

Angel investment

Venture capital

Getting investor ready

The pitch deck

The data room

The financial forecast

Shareholder agreements and articles

Cleaning up the cap table

Before you send the deck

Advance assurance

Intellectual property

Filings up to date

Your own position

Questions people ask

Equity investment

How much equity should I give away?

Advance assurance for the seed scheme and EIS

Angel investment

Venture capital

Start a funding search

Cover for a personal guarantee