Complete Your Information Memorandum
In order to attract investments with Leapfunder, you need a clear plan in the form of an Information Memorandum. That’s a document that contains your business plan, gives an overview of anticipated risks, and lays down the detailed financial terms of the investment round that you are offering. Of course you also need a legal entity in your jurisdiction (so a B.V., U.G., AB, IVS, or whatever) before your Leapfunder campaign can start.
When your campaign starts, you can begin attracting investment. You can choose to do a priced equity funding round using the Leapfunder Straight Equity product. In this case the pre-money valuation needs to be set and communicated online. You can establish a clear valuation by showing that there has recently been a €100k cash investment in shares for an unambiguous price.
At the beginning 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 ask a notary to start their company, called MedicSoftware B.V., at which point the Leapfunder campaign can start.
What does your Information Memorandum include?
The Information Memorandum (IM) contains your business plan, and all other information that is critical to the investment round. 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 results so far
• A description of your team
• A solid financial plan
• A description of the risks
• Some project timelines both for the near-term and the long-term
Apart from your plan, you will determine the Minimum Investment that you need in order for the round to be considered successful. It is important that the Minimum Investment is enough so that you can take your company forward to some a next milestone. Otherwise you may have to raise more funds without a successful milestone to report. 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 go on to attract more investments, provided you have reached the Minimum Investment. You will also set the Final Closing Date, which is the date that your round will finally be closed for subscription. Read more
Begin Raising Funds
Now you can start to attract investors from your personal network as well as Leapfunder’s. Leapfunder will install a payment gateway that is dedicated to your campaign: in this protected online environment your data room will be presented to investors who have used Leapfunder before, and to investors from your own network.
When investors are convinced of the quality of your proposition, they can invest directly. Investors can invest remotely from anywhere on the planet in only a few minutes, although we exclude investors from U.S. soil for legal reasons.
As soon as you achieve the Minimum Investment the investment round will be considered successful. All the money is collected in an independent bank account. Now that you have the minimum you can request your cash. The final legal processing and the transfer are usually completed within one week. The Minimum Investment needs to be achieved before the First Closing Date, otherwise the round is not considered successful and the cash has to go back to investors.
Example: MedicSoftware B.V. needs a minimum of €50,000 to develop a first prototype of their software. 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 on board later.
During this phase Leapfunder will supply all the necessary legal documents, the software that runs the investment button on your site, and access to the independent bank account needed for the campaign. Read more
If the investment round has been successful, your company can go forward with your plans. You can now use the money for whatever you indicated in the Information Memorandum , for example making a prototype or rolling out a go-to-market strategy.
Each time cash is released from the independent bank account, the corresponding investors get a security in the form of the Leapfunder Straight Equity. That means they now have the rights of an investor in your company.
Immediately after the round the startup should work to make sure that all investors receive their shares. The shares are held by a Special Purpose Vehicle (SPV) that needs to be legally created. This could take some time. Although the paperwork is sometimes complicated the startup should work to make sure the investors receive a written copy of their SPV Shares as soon as possible. Until the SPV shares are received the investors are formally a bondholders: that means they already have formal rights as an investor, but not yet all the rights that a shareholder has.
Example: MedicSoftware B.V. has issued €50,000 in Leapfunder Straight Equity securities. With this investment MedicSoftware can now develop a prototype.
Immediately after receiving the cash MedicSoftware visits a notary. They legally create the required SPV and make sure that all investors received the SPV Shares to which they are entitled. Read more
During the growth phase after the funding round, the investors can contribute a lot to the startup by offering help and assistance. Look for valuable contacts in your network and try to bring in customers. An active group of investors can really make the difference.
Example: A Leapfunder investor that has invested €1,000 makes a habit of reading the regular updates from the CEO. When he sees that the company is trying to expand into a country where he has contacts, he offers assistance in building the business there. Read more