We all know there’s no such thing as a free lunch and, likewise, there’s no such thing as free money. In this article we’ll demystify the fees associated with raising money to enable you to budget your fundraise accordingly.
There are four main types of fees associated with equity fundraising:
Professional fees> this covers accountants, solicitors and professional advice
Investor fees> money that your investors or institution take as arrangement or success fees
Asset fees> costs associated with producing investment assets, e.g. crowdfunding video or pitch deck
Broker fees> similar to investor fees, broker fees are paid to individuals or organisations introducing investors to your funding round
When it comes to engaging with professional services to support your investment round our advice is simple – pay for the very best you can afford. We know how tempting it can be to copy and paste an excel sheet a friend has used for your financial model, or download template legal documents from the internet but often these short-cuts can cause much bigger (and more expensive) problems in the long run.
Typically when fundraising you’ll likely need to engage with the following:
A commercially-focused, astute solicitor who has a wealth of experience in early-stage investment. Look for people who have worked on deals similar to yours, whether that is by size or sector, and ideally who come with great recommendations. Depending on the size of your round and the complexity of your deal, legal fees are a sliding scale usually starting at around £4,000+VAT and working up from there.
Corporate finance professionals who have industry experience working in early-stage investments. There’s no substitute for someone with cross-market, cross-industry experience when it comes to putting your investment proposition and assets together. These individuals and firms can add decades of fundraising experience to your team instantly and often have close, direct relationships with investors. Essentially, they know what investors are looking for when it comes to pitch decks, financial models and fundraising strategies.
If you’re thinking of crowdfunding it’s also worth considering hiring a professional to support with the work involved in executing your public-facing campaign. You can read more about hiring support for crowdfunding here.
Again, corporate finance fees are a sliding scale, but expect to pay a monthly retainer for the work done in advance of investor introductions for the time spent on investment strategy and documents. £3,500+VAT and up is very normal.
Commercial accountants and tax professionals who can assist with HMRC matters including filing share certificates and EIS certificates. This is usually around £1,500+VAT depending on the scale of your fundraise and number of investors.
Remember, working with the best professional services possible on your raise can literally save you millions in the long run and can also be the difference between getting investors to commit or not.
Investor fees is an area that is often overlooked, and if not considered in advance, can take people by surprise when they see investor fees outlined in term sheets, particularly if you are approaching angel networks or VC funds. These fees often come in the form of an on-going management, service or observation fee paid either monthly or annually to cover board meetings and ad-hoc support. Upwards of £500+VAT per month is typical here.
In addition to this, it is also common for investors to charge an arrangement fee on the money they put in. This can be anywhere between 3%-7% of the money they commit and can even be as high as 10%.
Similar to professional services, it’s worth allocating budget to the production of professional investment assets. Whether that is working with someone to write and design your investor deck and financial model, or produce a punchy pitch video that captures the attention of the crowd.
Depending on the production value, the average crowdfunding video comes in at around £5,000+VAT. Likewise, expect to pay similar for an investor readiness service including a professionally designed pitch deck. A financial model should come in at around £1,500+VAT-£3,000+VAT depending on your business model complexity.
Finally broker fees are paid to individuals or organisations introducing investors to your funding round. An individual broker who is introducing your investment opportunity to individual investors, syndicates, or institutions often charge between 5-7%. This is also industry average for corporate finance houses or crowdfunding platforms.
It’s easy to see how fundraising fees can stack up so it’s worth setting a budget in advance and consider these costs when you decide how much money you’d like to raise. We’d recommend budgeting 5-10% of your total fundraise to be allocated to the cost of raising and be mindful that this investment, particularly in professional support, can be the difference between you closing a round as efficiently as possible and your deal dragging across the line after 12 months.
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