Investing in Businesses
Why do businesses need to raise investment?
When an entrepreneur starts a new venture, they usually need money to turn the project into an actual business that can reach out to customers and later-stage investors. Depending on the type of food business, this capital might allow them to hire a great team, buy equipment to build a prototype, lease a kitchen space or acquire inventory, expand their marketing efforts, and so forth.
What are the main risks of investing?
The main risk is simply that the business could fail, and investors won't get any money back. In addition these kinds of investments are likely to be illiquid for a substantial period of time - often a number of years - meaning that investors are unlikely to be able to sell the investment and it is also unlikely that they’ll receive dividends from it. Finally, there is the risk of dilution: if the startup raises more capital later on (and most successful businesses will do), the percentage of equity that existing investors hold in it will decrease relative to what they originally had.
How much equity do investors get for their investment?
Each business sets how much money it wants to raise in exchange for a certain percentage of its equity, and each investor’s equity interest will be proportionate to the size of their investment. So, for example, if a campaign raises £150,000 in exchange for 20% of its equity, and you invest £1,500 (1% of £150,000), you will receive 0.20% (1% of 20%) of the equity of the business.
Who can invest on Crowdfooding?
People from throughout Europe may invest through Crowdfooding. Due to UK regulation, investors from US and Canada are not able to invest. We may be able to authorise a small number of investors outside of Europe to invest in a particular campaign if they have a sufficiently strong pre-existing connection with the entrepreneur. Please contact email@example.com for further details.
How do I create an investor profile on Crowdfooding?
To create a profile, you first need to register on the site.
You will then be asked basic personal information. In order to see the full details about each investment opportunity we require you to categorize yourself. After that you can add your investment portfolio history to allow Crowdfooding's algorithm to filter opportunities based on your portfolio focus and interests.
How can I browse business proposals?
Once you have registered and have been approved as a member on the platform you will be able to view the businesses by logging into your profile.
How do I invest?
After you've logged in and you feel you are ready to invest in a business proposal just click on the “Invest” button on the campaign you're interested in. Please note most campaigns have an investment deadline. If your pledge is accepted during that time window, you’ll be given details of where to make payment and receive email confirmation once payment has been made.
Is there any particular implication of making a commitment to invest via Crowdfooding and then not proceeding by making payment?
There are no legal implications for not investing but we reserve our rights to ban users who continuously abuse the process.
What information will I receive on my investment after I have invested?
The investor will receive a shareholders agreement and articles of association to sign. Invested companies are required to provide quarterly updates, biannual management accounts and notification of any future events affecting the share structure of the company.
Do campaigns have deadlines for investment?
Yes, each campaign will have a planned deadline for expression of investment. Once a deadline has passed, in most cases the project will be removed from the current live business proposals.
What procedure is followed prior to a start-up/ business being added to the platform?
Prior to a business being added onto the platform we conduct the necessary due diligence, anti-money laundering (aml) and know your client (kyc) checks in order to ensure that the business is operating as a going concern and that it has ‘all of its ducks in a row’ so to speak. We will not place a business on our platform unless it meets these requirements.
What happens when a campaign reaches 100%?
If a campaign receives 100% of the investment it is seeking within the campaign period, we provide financiers with the relevant legal documentation required to complete the round of financing raised on crowdfooding. This includes the execution of our standard form subscription agreement and the adoption of our standard form articles of association, in each case modified as necessary to reflect any relevant circumstances. And when we are happy that everything is in order, we transfer the funds to the company. If any material problems arise during the fundraising process, if we discover anything which we believe would result in the completion of the deal not being in the interests of the investors or if the company is not willing to adopt our articles or sign our subscription agreement, then we will cancel the deal and return investors' investment funds.
What if a Business Proposal is oversubscribed?
If a campaign is oversubscribed, then there will be a consultation period with the entrepreneur in the few days following the deadline.
The entrepreneur may take account of factors such as investment record on other projects, commitment history, average size, whether the investor is silent and a number of other factors. There is no appeals process as the business entrepreneur retains complete discretion over who to accept as a new shareholder.
When can I expect my tax certificates?
Once the business has been trading for 4 months or after spending 70% of the raised capital they will complete the SEIS 1/EIS 1 form.
Following this the director of the business will issue the SEIS 3/EIS 3 to investors this is normally done in 4-6 weeks after the SEIS 1/EIS 1 has been submitted.
Alternatively if the business has already been trading for 4 months prior to the raise they can immediately send off the SEIS 1/EIS 1 forms, speeding up the process.
Where do you market the website?
The site is advertised in a number of ways including; industry journals, trade shows, word of mouth between industry specialists and via a number of modes of social media.
How do I withdraw my details from the website?
You can request to leave the website at any time and your account will be made inactive. If you return, we can easily reactivate your account.
Is there a minimum or a maximum investment?
The minimum amount the company wishes to raise is set by the company to allow investors to hold some equity stakes in the company. we recommend investors to invest a minimum of £500/€500 per investment to access companies’ equity stakes (although some campaigns may have a specific minimum investment which is greater than £500/€500 as a result of its share price).
Below that threshold, investors will be given access to specific set of rewards (e.g packages of products/services) given by the company. The maximum investment is, however, how much money the business is willing to accept, less anything that's already been committed by other investors. Please note that restricted investors are restricted to investing 10% of their net assets.
Given the risk profile and returns potential of early-stage businesses as an asset class, however, we strongly suggest that investors seek to build a balanced, diversified portfolio.
How do I pay for an investment?
There is currently only one way to complete your investments:
Bank transfer – Using your unique reference number provided, you can deposit money into Crowdfooding account by initiating a standard electronic bank transfer (also called a payment). Bank transfers can take several business days to be received so, in order to secure reservations into the campaign, we encourage investors to process it as soon as they receive wiring details.
What happens if a campaign doesn’t reach its target?
Investors will get their money back in full. Crowdfooding operates on an all-or-nothing basis, meaning that if the business does not raise all of the money its campaign is seeking within its allotted campaign period, it gets nothing and investors receive their funds back.
What are the eligibility requirements in order to make investments through Crowdfooding?
To make investments, you need to successfully complete our Investor Questionnaire for retail investors, or self-certify as a "high net worth individual" or a "sophisticated investor" (or, if you are an institution, a “high net worth company, unincorporated association, etc”). This is necessary to show us that that you have the professional judgment and understanding to appreciate the risks and considerations of investing in early-stage businesses as an asset class.
How do investors make money?
The main way investors can make money from investments is if they sell their shares. This is most likely to happen if the business is bought by another company or floats on a stock exchange – also called an exit event. It takes time for businesses to grow to the point of exit; it may take several years for this to occur. In addition, investors may also receive dividends the company pays on their shares .Please note that any possible exits are dependent on the company successfully raising funds and implementing their business plan.
Why we think investing through Crowdfooding is an appealing way to invest
It is relatively difficult for most people to invest in early - stage food - related businesses through the traditional way as a business angel. The reason being that to be an angel, people generally need to have £100,000 or more to allocate just to businesses (which means that they need to have far more than £100,000 in order to build a diversified portfolio that includes safer assets), and they also need to have the time to find, negotiate and execute a large number of offline investments. Investors with that much money and time available might not need Crowdfooding (although we believe that we can still provide them with access to investment opportunities they might not otherwise find, and more efficient investing). For everyone else, though, Crowdfooding strives to provide the chance to invest small amounts of money through a streamlined, online process, which means that we're a way to participate in the potential benefits of investing in early-stage businesses without having both a large fortune and lot of time to spare.
What fees do you charge investors?
We charge a straight forward 2% management fee to investors who decides to invest on a campaign listed on the Crowdfooding platform.
Our team works hard from before you make an investment through to the sale of shares to earn our fee, including:
- Reviewing each and every statement made in campaigns to ensure they are fair, clear and not-misleading. For each statement made, we require evidence to back it up;
- Preparing the relevant legal documentation and conducting all legal due diligence required to complete the round of financing raised on Crowdfooding, including execution of our subscription agreement and the adoption of our standard articles of association; and
- Guaranteeing that each company provides quarterly trading reports to investors through the platform and enforcing investor rights afforded to them in the Subscription Agreement.
In addition, we try to assist with all EIS or SEIS advanced assurance paperwork to ensure investors have access to their reliefs.