Clear and transparent opportunities — Club Deal 101
Presenting an investment opportunity is always tricky. You want to promote your preferred ideas while avoiding conflicts of interest. When in doubt, follow one guideline: transparency.
Club Deals often form for tax reasons. European tax reliefs — the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) in the UK, the Tax Shelter for Seed investment in Belgium, PEA-PME or FCPI in France — offer big advantages. However, it’s important that these tax incentives do not form the club’s primary motivation, and never compromise the Club Manager’s due diligence. The cornerstone of every club deals’ long-term objectives must be investments in relevant and quality assets.
Let the facts do the talking. Make all information — pros and cons — available to club investors to demonstrate quality. Ultimately, trust grows clubs, closes deals, and fosters investor engagement.
Transparency from the Club Admin
Club Admins have a lot to consider. Do you co-invest with your community (“Skin in the game”)? Do you take success fees from the entrepreneur? Do you take management fees? Does the Club lead a round with your own term-sheet? Do you co-invest with an external lead investor? Do you own a part of the opportunity? If you create an SPV, how is it run? Who pays for it? How much? Do you take carried interest? What is the hurdle rate?
Whatever you decide, it is imperative to disclose all information related to the deal. We recommend not taking fees along the way (excluding carried interest). This prevents any conflict of interest.
Running a Club cannot be compatible with an opportunistic strategy. You’ll win in the long run only if you offer investment proposals that align with the members. It is the only way to make your club grow.
Formatting Matters
Investors get a lot of investment opportunities thrown their way, so time-efficient review and due diligence are of paramount importance. To promote engagement, use a simple, clear and consistent deal description template. This way, investors have the essential information at their fingertips.
The template must reflect your investor’s needs. It might include a focus on the team, the product, the market, the competition, the expected duration, exit strategy, etc. Whatever the needs are, the information should be structured in a familiar pattern.
There are essential items not to be forgotten in a deal description. Term-sheet, financials, and business plans are obvious. Additionally, include a public AMA with the entrepreneur. This way, answers too frequently asked questions are shared with everyone involved.
Overall, quality, transparency, and consistency in the presentation are the keys to engage your investors and help your club grow.
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