Q&A: A lawyers’ view to accessing funding

This article originally appeared in the second edition of finnCap’s Ambition Nation: Female Leaders Series publication.

Lesley Gregory is Chairman at Memery Crystal, one of the UK’s leading law firms specialising in entrepreneurialism, private funding, capital markets, corporate finance and M&A. Having embarked on a journey of significant growth itself, Memery Crystal can relate to key decisions a business should make to succeed including how to bridge any funding gap. Being conversant in all the various funding options, and how they play out, ensures their clients can make the right decisions quickly and with confidence.

Memery Crystal is well connected with both start-up and scale up entrepreneurs and institutional investors and venture capital funds. Through their networks, they regularly make introductions for clients and contacts, ensuring the right funding option is matched to the right investor.

Here, Lesley gives her perspective on the legal challenges that come with growing your business and seeking investment.

What does the term ‘investment ready’ mean to you?

Investment ready can mean different things to different audiences. As lawyers, the key areas we need to make sure are in place for businesses pre-investment are ensuring the corporate structure is in place and all shares are correctly held and issued to founders etc., that all IP is protected as far as possible and owned by the company, and all key contracts have been reviewed and are legally watertight. The composition of the Board is also key to ensure the company has the right skills in place for its stage of growth.

What does an investment ready founder look like?

Firstly, investment ready founders have secured their key team for the company’s next stage of growth. In doing so, they acknowledge that they cannot carry out all roles themselves and have listened to advice from mentors who have had similar experiences of building a business in a similar sector. For female entrepreneurs a mentor can be a critical success factor in the journey to becoming investment ready – it doesn’t matter if they are a man or a woman. They should also have generally proven their product, to the extent that it is at least developed to pilot stage with customers or achieved some modest sales in a market with underlying growth factors indicating long-term future growth.

What are the typical needs of founders you encounter?

The key challenges are around finding and retaining talent, accessing current and new markets, and securing the right finance for growth. Ensuring that the company infrastructure is growing at the same rate as company requirements is also critical for sustainable high growth. Most importantly, ensuring you have the right leadership team in place with the right skills, will support the growth plans you want to achieve.

What legal advice do you typically offer a scaling company founder?

Before undertaking any type of investment it is important to have a clear understanding of the level of control a founder is willing to relinquish; this is directly linked to the required level of investment. Valuation is often key and founders generally have a fixed idea of how much of the company they wish to sell to third party investors.

In my view, however, founders get too hung up on the idea of retaining as much equity as possible. Ultimately, it is better to have a smaller stake in a larger, more valuable business than retain most of the shares and stifle growth.

I also advise taking the right investor – don’t just take any money offered. Often, the right strategic investor, with deeper pockets and good industry connections, can make all the difference, even if the valuation isn’t quite what the founder anticipated.

It is also worth not underestimating the importance of chemistry. You do need a ‘fit’ and as a woman this can be vital to the success of your ongoing relationship with your chosen investor. I would recommend going with your gut feel: mostly you know within the first five minutes if they are the right ‘fit’ for you and your business.

What is a signal that a founder might not be ready to embark on their growth plans?

Making a fully informed decision is crucial, so trying to undertake a funding decision within a short timeframe can be problematic. Both internal and external factors impact the potential growth of a business and a very thorough and considered approach needs to be taken.

There are of course certain issues that are outside management’s control – the current state of the market, for example, which can have a detrimental effect on success.

Equally, internal issues such as an underdeveloped product, problems amongst employees for example, can also mean that sometimes it’s better to take a step back and wait before pushing ahead with funding and growth plans.

How do you see the legal profession playing a role in entrepreneur support networks like Ambition Nation?

When you are on a funding journey, to make the right decision for your firm, it is paramount that you utilise your personal and business networks to full effect. Support networks provide an excellent forum for entrepreneurs to exchange information and ideas. Women’s networks in particular can be fantastic environments to ask questions within a non-judgemental and supportive environment. It is so important that legal professionals are involved in these networks so that founders can access the best legal advice.

If a business doesn’t have the correct legal structure in place at an early stage, it really can be the difference between success and failure as a business grows. We at Memery Crystal spend considerable time building networks and hosting events which benefit entrepreneurs. And our particular focus is very much on female-led businesses. We always want to hear from female entrepreneurs!