In this chapter, we will look at:
The “finance ladder”: the complete corporate finance process from start-up financing through to growth capital, private equity and exits/IPOs; and
Building an investable platform — key legal, accounting and tax issues that all founder teams should be aware of.
The Finance Ladder
We will consider the life cycle of a fintech company by looking at the financing options and stage-posts of a high growth trajectory.
What is meant by venture capital, growth capital and expansion capital?
What are the differences and the fundamental aspects of each type of financing?
When might private equity come into play?
What are the advantages / disadvantages of taking a fintech company public?
Building an investable platform
Having the best idea in the world does not mean that you will build the best company in the world. The rule of law, tax bear traps to avoid and key accounting issues all need to be slotted together to create an investable platform.
The frenetic pace of a fintech start-up means that the tax position of the company and founders can easily be overlooked. Getting the paperwork right at the outset is so important. Part of that is getting the right team of advisors involved but all management teams need to be aware of the key accounting, legal and tax issues that institutional investors will want to see in place before they invest.
On an exit which delivers the returns that fintech-entrepreneurs are likely to be hoping for, having your house in order from day one can mean, at least here in the UK, the difference between a 10% tax bill and a tax bill in excess of 45%. And if the other foundations are not in place, it be the difference between getting the deal across the line or not (and/or creating huge value issues for the shareholders of the company).