Fees for an Investment Deal
As a business owner looking to raise finance it is important to understand the various types of fee that you may be required to pay as part of the fund raising process.
As you may know there are many different service and finance providers each of whom will want to charge a fee. The accumulative effect of such fees on a deal can be very significant and may even deter certain investors.
We recommend that you ensure that there are no surprises in store by discussing fees upfront with every party and keeping a record of the accumulative total. This will also allow you to raise the money you need to cover the fees in addition to the amount of money you need.
Here are just some of the fees you can expect to pay:
Investment Readiness Fees:
Anybody who helps you to formulate your business plan and go through the fund raising process will make a charge for their services.
Fee type:, Sign up fee, ongoing consultancy fee, fee as percentage of successful fund raising , or a combination.
Solicitors will charge a fee for producing and or reviewing the legal documentation for the investment transaction. It is likely there will be solicitors acting for the investor and a separate firm of solicitors acting for the investee company. The investee company will be expected to pick up both sets of fees.
Fee Type: Ongoing consultancy fee (hourly rate) or one off project fee.
Corporate Financiers/Accountants can get involved at various stages. Some will help with the writing the business plan and the investment proposal others just advise either side on the structure of the deal.
Fee Type: Ongoing consultancy fee (hourly rate), one off project fee or success fee based on funds raised.
Business Angel Networks:
Some networks will charge the business to register their plan with them, others don’t, but all of them take a fee for successful fund raising. The network itself may convert it’s fees into equity to invest alongside the individual investors. However, business angels themselves are looking to realise their return at the point of exit of the investment and not entry.
Fee Type: Upfront fee, percentage of funds raised. Ongoing monitoring fee once the investment has been made.
Venture Capital Firms:
Venture capital firms will work on a very similar basis to business angel networks. Whilst these would not typically charge a registration fee, if they undertake due diligence in connection with the potential investment they will expect the investee company to underwrite some of the costs. There will also be a negotiation fee payable on completion of the investment which will be based on a percentage of the funds invested by them and there will be an ongoing monitoring fee, again based on a percentage of the amount invested by them and payable during the life of their investment.
Fee type: Due diligence, negotiation and monitoring fee.
Banks and other lenders:
Banks and other lenders often provide matching finance in investment deals. In general the cost of the organising the loan can usually be added to the amount borrowed and repaid during the life of the loan.
Fee type: Arrangement fee, interest/capital repayments
Grant consultants manage the grant application process for companies and use their knowledge of the grant sector to increase a company’s chance of securing a grant.
Fee Type: Upfront fee, percentage of funds raised.
Other advisors such as intellectual property specialists may well be involved in a deal. Their fees though would normally be charged as an advisor and not be linked to the successful raising of funds. They could be employed by either investor or entrepreneur depending on their role.
Before signing up to the services check the small print on the parameters for charging of percentage of funds raised. e.g. is it on all funds raised, do the funds have to be raised by them, how long will the agreement be in place etc. There should be a termination date to an agreement to try to raise funds. Make sure that all parties are aware of all fees at all stages.
Total fees as a percentage of funds raised will vary depending on the complexity of the deal and the amount of money being raised. In broad ball park figures you might expect total fees charged at the point a deal is completed to be in the range 5% – 15% of the amount raised.
If you have any other questions on this then make sure you raise them with any of the members of our network to whom you are talking or click here for more information.