Acquiring the investment for your travel startup is surely a lengthy,time-consuming, complex process yet very indispensable and crucial for the well being of your travel and tourism startup. Our recent article on ‘How to raise funding for your startup’ introduced you to the multitude of avenues where you can gather capital from for your travel startup, but, elucidate on what happens after the initial step, we’rehere with a detailed account of the entire process that would clear your doubts regarding the whole process of raising funds for your travel startup.
Most people believe that writing a business plan at the outset of the business is important, but refining the whole strategy at this stage is neither needed nor essential . However, we must tell you that when it comes to getting investment, a business plan and other documents are very instrumental ways to communicate to the investors that your startup is such an investment opportunity which the investors shouldn’t miss out on, particularly as they will be inundated with requests for investment. Hence here is a list of all that you should get ready before approaching the desired target investors:
Correct legal structure
If you already are not aware then we must tell you that the directors or entrepreneurs of any startup cannot giveaway shares of the business in exchange for investment monies until and unless a legal entity has been established with the shares, i.e. a private limited company. So, if at the moment you are operating as a sole trader, or you haven’t started trading yet but intend to seek investment in the future, you will need to incorporate as a company and transfer all property owned by the ‘business’ into the company name.
This stands as the ‘elevator pitch’ in a written form for your business which specified what the core of the business is.
This is the detailed case of your business, inclusive of data from market research, any traction to date, financial forecasts, the amount of investment being sought, and the purpose for that.
Often called the ‘Pitch Deck’, this involves a document being sent as a reading material and or physically presenting it till red exclusively for the investors.
Share capitalisation table
Drafted with the help of a solicitor this sets out the structure of shares for your company before and after investment.
One of the most essential aspects of getting investment is reaching out to the connections you have in your network that might introduce you to potential investors, or even advise you on the process and review the documentation you have prepared for the target investors.
Once you’ve got the deal sealed around any particular investors, here’s what entails after that:
It means the investigatory work done around a transaction such as any investment where the investor conducts detailed research into the financial, corporate and such status of your startup.Investors usually make a preliminary request regarding the provision of documents including the startup’s information, budgets, forecasts, key supplier/ customer contracts in place, employees and employment contracts,schedule of intellectual property, other property or leases, owned by thecompany, details of other investors, shareholders, and bank loans, any existingor future litigation, tax and VAT filings and insurance documentation, and, ifapplicable, your data protection policies.
The term sheet lays down all the terms on which the investor is going to giveyour startup funding. It will also set out any conditions you will have to meetin order to successfully gain funding and, also decisions about dilution ofshares and decision making rights, if any. It can be prepared by your side or theinvestor’s, but in either case, it is important to seek advice from a solicitorto ensure that you understand each term, but also so that your solicitor maynegotiate the most favourable terms possible on your behalf, so as to suit youand your startup’s position.
Long Form Documents
When the details of the term sheet have been agreed upon and the other previoussteps completed, your (or the investor’s) solicitor has to develop the longform documentation which will implement the funding arrangement. It willinvolve the following documents:for
ShareholdersAgreement or Investment Agreement
This will lay down the agreed terms in the termsheet in more detail specifying how much control other investors have in yourcompany.
These are made to protect the investor or majorshareholders from key members of the founding team leaving the company soonafter investment, meaning that certain shares will ‘vest’ over some time.
This agreement is like the promise of yourbusiness to sell a certain number of shares to the investor at a certain price,and that of the investor to pay that price.
Articles of Association
These articles rule the day to day operations ofthe startup company once it has received the investment and started the courseof dealings.
Closing Date/Receive Cash
When all the previous steps and conditions have been completed, the documentshave been prepared and terms agreed, a closing date is set for the signing ofthe agreements and the transfer of the shares and funds. This puts an end tothe funding round.
The Enterprise Investment Scheme (EIS) and the Seed Enterprise InvestmentScheme (SEIS) are tax reliefs for early stage investors purchasing shares incertain qualifying companies and are designed to boost investment in startups.Prior to the investor claiming tax relief on their investment in your startup,you will need to request the correct form from HMRC and demonstrate that yourcompany meets the criteria.
Accounting & Administration
Once the investment is secure, your solicitor will be entitled to arrangeinitial housekeeping including issuing share certificates, updating thecompany’s share register and registering with Companies House. Once you haveexternal investors, your accounts and bookkeeping will need to be in proper,sound and reliable condition and completely up to date
Hence with the aforementioned points to keep inmind, we hope that when you actually step into the process of raising fundingfor your startup, the stages go on as smoothly for you and your startup as wehave mentioned!