Convertibles - interactive quiz!

Q1: LE comment - “We need to raise £650k for this round to have 12 months runway, with £300k pre-committed”.

Is there anything you’d challenge?

• No sounds fine – we’ve launched campaigns with less than 50% pre-committed before

• We’d need to increase the raise size to hit the £750k so we ensure it converts

• The funds raised in this round shouldn’t be included towards the threshold

• The threshold is too low

Q2: LE comment - “We want this to be run as an EIS eligible campaign, but we haven’t yet gotten Advanced Assurance”

How would you respond?

• ASAs can’t be EIS eligible as they’re debt instruments

• We would need Advanced Assurance as a pre-condition to launch

• We would need Advanced Assurance as a closing condition

• It can’t be EIS as it’s converting into preference shares

Q3: LE comment “We want to incentivize Seedrs’ investors coming in on the round – can we set a valuation cap for Seedrs only?”

How would you respond?

• We need to raise on the same terms, so if the directs don’t have a Val Cap then we need to match

• Definitely wouldn’t hurt, but the likelihood is the ASA will convert at the Longstop Date. So it may not be that much of a cherry

• Definitely! The lower the better!

• Yes, but it should be no more than £2m to match the longstop valuation

Q4: LE comment - “Valuation Cap aside, how else can the terms be made more attractive?”

What would be your first suggestion?

• The default valuation can be decreased

• Decrease the equity raise trigger

• The discount can be increased

• The longstop date can be extended, so that there’s a greater chance the ASA will be triggered by a new raise

Q5: BD has flagged this one on Investment Committee and asked if we can work with it. £100k pre-committed, aiming for £50k under nominee.

What should be your response be?

• We’d them to raise on the Seedrs ASA if we’re to take this forward

• No need to respond – it’s a legal query so let the legal team come back on this

• The interest rate is too low, they need to increase this or we can’t work with it.

• Repayment mechanisms are a regulatory issue for us.

Q6: It's now a T1 raise. LE comment - “Our lead investor wants to be paid their interest on a monthly basis, but we can repay all / part of their loan at any time.” What's your response (multiple)

• That’s great! It’s not always that we can give investors an immediate return on investment

• The Company having the choice to repay at will is a regulatory problem for us

• Monthly payments is unnecessary and too much admin for us to be worthwhile

• Fine in principle, but the interest rate is too low so we need our interest rate to be higher

Q7: The LE was unwilling to change any of the commercial terms, but the campaign isn’t performing very well.

What do you think the KEY reason may be?

• The longstop date is very long – investors tend to push back on that

• The discount is low – given the 3 year longstop date, it could be a bad result

• Lack of a valuation cap is making this too risky

• Bespoke convertibles can be too confusing and off putting for the retail market

Q8: BD has asked “Can we reflect this in an equity round?”.

What should be your response be (multiple choice)

• No – convertibles can never be reflected in equity rounds as they’re on different terms.

• Yes – even though there’s a discount, we can just price the round at a 20% discount to make sure we’re on the same terms

• It depends– if the discount is on the next round share price, then it won’t work no matter what price we set

• Why has the Co entered into ASAs for an equity round? Suggest they’re terminated and issued straight equity instead. 

Q9: The discount is dropped, and the ASAs will covert at the round price. The LE now has £300k investing under the ASAs, and looking to set min target as £200k under the nominee. Any issues with this?

• No – They have loads of runway, pre-reg looks good, £300k should be achievable

• Yes – we can’t rely on investors’ intentions, the ASAs need to be terminated and investors issued equity to be sure

• Yes – we need to set the minimum target at £400k, otherwise there’s a risk the ASA won’t convert

• Yes – the pre-committed investment doesn’t count towards the trigger, suggest the SeedFast is varied to make sure it is.

Q10: You’re sent all the ASAs by the LE - there are 12 ASAs, 4 of which were entered in a period between 4-5 months ago.

Might there be any issues here?

• Yes – if they hit the longstop some conversion prices will be better than our share price

• No – the default share valuation is the same as what we’ve set for the round (£4m for each) so even if they convert at the longstop, it’ll be at our share price

• No – we’ll go live in the next week or so, so well within the 6 month reflection window

• No – even if the share price does come down, we can just change ours to match once we’re live