Raise Funding with Leapfunder's Angels
Using Leapfunder's instruments, entrepreneurs can connect with investors, access tested legal documentation, and find guidance as they seek seed financing or later rounds of funding.Contact us
Complete Your Information Memorandum
In order to attract investments with Leapfunder, you need a clear plan in the form of an Information Memorandum - a document similar to a business plan including anticipated risks, financial details of the Leapfunder Notes you are offering, a financial plan, etc. You must also form a legal entity for your business (i.e. B.V. or U.G.) before your Leapfunder Campaign can start.
When your campaign starts, you can begin pledging Leapfunder Notes to investors who participate in your funding round. Leapfunder Notes are Convertible Notes with some features that your investors will be very interested in, learn more about them here.
During this phase Leapfunder will help you write the Information Memorandum and give you advice on how to structure your campaign.
Example: An entrepreneur sees an opportunity to develop a software application for the healthcare industry and decides to raise investment with Leapfunder.
They complete their Information Memorandum containing a description of the proposition, the team, a financial plan and anticipated risks.
They utilize a notary to start their company, called MedicSoftware B.V., at which point the Leapfunder campaign can start.
What does your Information Memorandum include?
Your Business Plan. This document is extremely important. The Information Memorandum forms the heart of your agreement with your investors. It should be an honest representation of your plans. If you later want to deviate substantially from these plans you can ask your investors for permission through a vote. It should include:
• A description of your product or service, the market, and the competition
• A description of your team
• Some project timelines both for the near-term and the long-term
• A solid financial plan
• A description of the risks
• A description of the current financial situation and financing up till now
Apart from your plan, you will determine the Minimum Investment that you need in order to start. It is important that the Minimum Investment is enough so that you can start your company. In addition, you will set the First Closing Date. On this date you need to have acquired the Minimum Investment, otherwise the investment round will not go through. After the First Closing Date you can still attract more investments.
It is important that you start a company in the form of a B.V., an Ltd., or a comparable legal form. This is necessary to be able to issue shares in the company.
Once you have all these pieces together, your campaign to attract investors will start. You determine how you want to present your plans to investors. You could make a website, a personal presentation, an ‘investors day’, a film or an animation about your product. Read more
Begin Raising Funds
Now you can start to attract investors from your personal network as well as Leapfunder’s. You will receive a secure plugin from Leapfunder to use on your company’s website, your campaign will be presented to investors who have used Leapfunder before.
When investors are convinced of the quality of your proposition, they can invest directly. Investors from all European countries are eligible to buy Leapfunder Notes in your company, and most other countries.
If you achieve the Minimum Investment by the First Closing Date (as detailed in your Information Memorandum) the investment round will proceed; until then the money will be collected in an escrow account.
Example: MedicSoftware B.V. needs a minimum of €50,000 to develop a first prototype of their sofware. Together with Leapfunder, the MedicSoftware team finds investors including friends, family and other stakeholders. They each invest a small amount. MedicSoftware finds 5 investors for €5,000 each, also 10 investors for €2,000 each and 5 investors for €1,000 each. The Minimum Investment is realized before the First Closing Date and the investment goes through.
The first investors will probably be people from your immediate environment who know you and can tell how serious you are. Investors who don’t know you, or don’t know your business area, will often get onboard later, once they see that you have already attracted other investors.
During this phase Leapfunder will supply all the necessary legal documents, the software that runs the investment button on your site, and arrange access to the escrow account. Read more
After Your Successful Round
If the investment round has been successful, the enterprise can start. An entrepreneur can now use the money for whatever they indicated in the Information Memorandum, for example making a prototype. Now that the investment has been successful, the investors get a Leapfunder Note for the amount they have invested.
Example: MedicSoftware B.V. has issued €50,000 in Leapfunder Notes. With this investment MedicSoftware can now develop a prototype.
When your financing round has been successful, your company can launch. You can use the investment for the goals you have stated in the Information Memorandum. Once a month you will inform your investors about the company’s progress. At this point, your investors will likely be very enthusiastic about your plans. A good investor base can help your company a lot, for example by bringing you in contact with their network.
As stated above, investors will receive a Convertible Note. In exchange for this security they will eventually (in step 4) receive SPV Shares. We call this Conversion. The big advantage of this is that the value of the shares does not need to be established until later. Often it is very difficult to estimate the value of the shares early on. You never have to repay the Convertible in cash, it always converts to shares. Read more
Convert Notes to Shares
There comes a time when the Convertible Notes will be repaid with shares. This usually happens when a large investor decides to invest. The value of the shares will be determined by the price offered by the large investor.
The Convertible Note holders also get the shares for that price, but with a fixed % Discount, and of course they get Interest on the note. This moment is called the Conversion.
The Conversion will happen as soon as:
• A large (€100,000) investor invests in fresh shares in your company.
• Your company is acquired
• When the Final Conversion Date arrives. At this date a conversion will be triggered automatically.
Example: MedicSoftware B.V. gets an investment > €100,000 at a pre-money valuation of €330,000 for its 10,000 shares. This triggers a conversion of the convertible notes into shares. The €50,000 of investment has risen in value by 10% interest after one year to a total of €55,000. The investment has been done at a valuation of €330,000/ 10,000 = €33 per share. Apart from Interest, the Convertible Note holders also get a Discount on the share price, which was set to 20%. That means they get shares for a value of €33 reduced by 20% which is €26,40 per share. The total number of shares to the Leapfunder Note holders is therefore €55,000/ €26,40 or 208 shares.
There are good reasons to delay giving the shares to your investors until you have found a larger investor. By the time Conversion is triggered your company should have a track record. That makes it a lot easier to determine the value of the shares. The risk that you will be asking too much, or too little, for you shares is reduced. The investors that come in via the Leapfunder Note will be rewarded for getting in early: they get the shares at a Discount. This Discount is their reward for the risk they have taken over time. Additionally, the value of their shares has increased with the Interest.
To repay the bonds with shares, the price of the shares needs to be established. If a large investor is investing, or if someone is buying your company, you will negotiate the share price with that investor. This share price will also be used for the Conversion, as in the example above. If the Conversion happens because the Final Conversion Date has been reached, an independent expert will be asked to value the shares. Now this price will be used in the calculation, just as in the example above.
Often, a Cap has also been agreed in advance. A Cap is a maximum share price that will be used for Conversion. Investors in a Convertible often like to know roughly what share price they should expect during the Conversion. Of course it is difficult to say this in advance. But the Cap is a kind of guarantee: the pre-money valuation used for conversion will never be more than the Cap. You can set the Cap yourself.
Upon Conversion the start-up issues new shares. Those shares will be held by a Special Purpose Vehicle (SPV). The Special Purpose Vehicle gives out special SPV Shares to the noteholders, which are the equivalent of a share in the Company. In any shareholder meeting, the SPV votes on behalf of Leapfunder investors. In this way there is only a single representative for your group of Leapfunder investors. If the Leapfunder investors wish, they can decide how the SPV will vote, or elect their own representative to the shareholder meeting. If the Leapfunder investors are not interested in controlling their vote directly, then the SPV will be run by the start-up itself and it won’t vote. In principle the SPV Shares can be bought and sold, so if an investor wants to get out along the way, they can. Read more