FAQ

General

How will adultXfunding facilitate funding for businesses?

adultXfunding will bridge the gap between Crowdfunding and Business Angels by offering businesses the opportunity to raise finance through any one or a combination of the following methods:

  • Reward Crowdfunding – Active Now
  • Equity Crowdfunding (estimating second half 2017)
  • Debt Crowdfunding (estimating 2018)
  • Business Angel Investor Funding – Active Now

adultXfunding will operate a web-based platform that will facilitate the coming together of businesses that want to raise finance through the above methods, and a large database of personal investors who are prepared to consider making such investments.

What is Crowdfunding?

Crowdfunding is the concept of funding a project or a business through a large number of people who invest a relatively small amount each, usually through a web-based platform.

Reward Crowdfunding requires the business to offer a gift of goods or a service, either free or at a discount from the normal price, in return for a pledge of funding. This will normally be goods or a service that the company supplies, or intends to supply, in the normal course of its business.

Equity Crowdfunding involves a company offering equity share capital in return for cash funding. This is no different in concept from a Public Limited Company having a share issue. However, private limited companies do not enjoy access to the Stock Market, and the cost of going Public will in most cases be prohibitive for new or smaller companies. Crowdfunding therefore allows private companies to benefit from the ability to raise capital from a wide range of investors through a share issue, without the costs, regulations and reporting implications of being a PLC.

Debt Crowdfunding does not require any issue of shares by the company. It simply applies for a debt funding from investors at agreed rates and repayment terms. Rather than one individual or funder providing the full amount of the debt required, the business receives lots of small debt investments, which can be based on varying interest rates.

How will Crowdfunding work in practice through adultXfunding?

A business that requires funding should prepare a comprehensive business plan that will detail its background, its key objectives, its plan for achieving those objectives, and the level and type of funding that is being sought. The aim of the business plan is to attract investors and raise the required amount of funding for the business. It will therefore need to be informative, understandable and present a credible investment opportunity.

For equity funding, the pitch will state the percentage of the company’s total equity that is being offered in return for the target amount of investment. The business plan should demonstrate projected yields through dividend payments to investors, based on realistically achievable profit targets. A detailed exit plan for equity investors will also make the business a more attractive investment opportunity, as the lack of marketability of shares in private limited companies can often significantly devalue any investment.

For debt funding, the pitch will state the business owner’s target interest rate. The key element of the business plan will be cash flow projections that show the capacity of the business to make interest and debt principal repayments to investors within the agreed timescales. A sensitivity analysis that highlights various ‘what if’ scenarios, and their impact on the ability of the business to service its debts, will also help investors analyse the level of risk involved in making the investment. Normally, the lower the perceived risk is to investors then the lower the interest rate terms that will be offered.

Once completed to the required standard, the business plan will be presented on the adultXfunding website, and will then be available for our database of potential investors to review and pledge a level of investment. Investments cumulate until the pitch funding target is reached.

How long will it take a business to raise the required level of funds through Crowdfunding?

This will vary from business to business depending upon a number of factors, for example:

  • How well established is the business, i.e. is it a new business in the very early stages of development, or does it have a track record of trading?
  • How strong is the business plan, i.e. will potential investors view the pitch as a credible investment opportunity, and how will they perceive the level of risk that the business does not meet its objectives?
  • How much of the required funding will the business owners be able to generate themselves through family and friends?
  • Is the business valuation realistic in terms of the % equity being offered in return for the amount of investment being sought?
  • Is there a feasible exit strategy for equity investors, e.g. do the business owners intend repurchasing the shares at a premium at some future date, or is there a reasonable chance that the company will be bought over?
  • The track record of the Management team and their support infrastructure.
  • The standard and level of completeness of the Business Plan when initially presented.

Taking all these and many other factors into account, we anticipate an average business taking between 2 and 4 months from an initial application to achieving their investment goals. This timescale could vary considerably however, as we expect some ‘blue chip’ pitches to achieve their investment targets very quickly, while others may require more time to build up a following of investors.

What happens if the target level of funding is not achieved?

If the business pitch does not achieve the minimum tranche of its funding target within the normal 3 month listing period, then the committed investments are cancelled, the pitch is closed, and adultXfunding earns no commission.​

Business Angel investment funding – how will this be facilitated by adultXfunding?

A Business Angel is a wealthy individual who is prepared to provide debt or equity funding to a business in exchange for what they see as being an acceptable return which is commensurate with the level of risk in making the investment. The fundamental difference between Crowdfunding and Business Angel funding is that in Crowdfunding the risk and reward of investing is spread among a large number of investors, whereas a Business Angel will normally be the sole or principal investor and therefore takes on all or most of the risk and reward of the investment. Business Angel investments are by nature generally high risk and therefore the Angel will normally require a potential high rate of return on their investment. This often makes it a relatively expensive option for the business, with the owner having to forego a significant element of ownership and profits to the Business Angel in return for funding. However the lack of other funding options, particularly for start-up businesses, has meant that prior to Crowdfunding, using a Business Angel has often been the only funding option for a business owner. There are some advantages to using Business Angel funding rather than Crowfunding. Most Angels will want to have an active role in the company they invest in, as they will be keen to keep a close eye on their investment as well as doing what they can to help ensure that the business is successful. For many businesses the main benefit will therefore be the involvement of an experienced entrepreneur who can bring a vast amount of knowledge and expertise to the business. Of course, while many business owners will see this as a benefit, there will also be some who see the Angel’s involvement in their business as a problem, and will be reluctant to give up a degree of control to satisfy their Angel investor’s requirements. For business owners who see the advantages of having an Angel investor, but also want the benefits of Crowdfunding, the ideal solution may be to have a combination of Angel and Crowd investing. For example, the Angel may provide 50% of the required funding and take an equity stake, and the balance of the required funding could be generated through debt investment via Crowdfunding. This scenario would see the Angel providing his knowledge and expertise to the business while not being fully exposed to the risk involved in making the investment. The business owner does not have to relinquish as much ownership and control as he would to an Angel who provides the full amount of funding, and debt funding will generally prove to be a cheaper source of funds than an Angel. Businesses who wish to pursue an option of ‘co-investment’ between an Angel and Crowdfunding can use adultXfunding’s database of investors to raise the Angel investment as well as the ‘crowd’ investment. Any Business Angel will also require to be a professional or an elective professional investor.
 

What are the key differences between equity funding and debt funding?

Equity funding involves the issue of share capital in a limited company, which will normally confer voting and dividend rights to the shareholders.

What this means for the existing owners of a company is that their voting power, and therefore control over the company, will be diluted on a pro-rata basis in line with the % of new shares issued in relation to the total number of shares in issue. It also means that any distribution of profits through dividends must be shared among all of the shareholders on a £ per share basis.

From an investor’s point of view, investing in share capital should provide them with the opportunity to share in any success that the company has through distributed profits, and may also give a potential for capital growth through an increase in the value of the shares. When investing in shares in a PLC it is easy to obtain data on past trading performance, dividends paid, and movements in the share price, that allows an informed assessment as to likely future dividend yields and potential capital growth, albeit this is subject to fluctuations in the market caused by external factors. However an investment in a private company is much more difficult to assess, and this is why the detailed business plan and potential exit opportunities are so important to the potential investor.

Although Ordinary share capital normally confers voting and dividend rights to the shareholder, there are other categories of share capital that businesses may want to consider issuing to investors, for example:
 

  • Preference share capital – which normally confers the right to a fixed % or £ per share of dividend to the shareholder from distributable reserves of the company, prior to any dividends being paid to Ordinary shareholders. This type of share may be more attractive to an investor as they are more likely to receive a certain level of dividend, and therefore the business should be able to charge a premium share price for preference shares.
  • Non-voting Ordinary share capital – which will provide the shareholder a right to a share of any dividends paid to Ordinary shareholders, but does not give them any voting rights. For the individual minority shareholder the option of voting rights may not be particularly relevant as their ability to influence company decision making will be negligible. However if a Crowd of investors all have voting rights then they may be able to use their combined votes to exercise some control over the company. The potential loss of control of their company may not be a price that existing owners view as being worth paying to raise finance, hence why some businesses may offer non-voting shares.

Debt funding is generally less complicated than equity funding, in that it normally involves a simple debt securities agreement that details the amount of debt being provided, the terms and timing in respect of paying interest and repaying the principal and what happens if interest or repayments are not made on time.

For the business, the main advantage of debt funding is that normally it pays a fixed rate of interest and if profits exceed the projections the investor does not have to be paid any more than the agreed rate. In addition, the existing business owners do not lose any voting control over their company. However, the significant disadvantage is that debt security interest payments and capital repayments will normally rank ahead of any dividends to shareholders, and will usually have to be made irrespective of the level of profits and cash generated by the business. This can clearly lead to problems if the business does not meet its business plan trading projections.

Debt funding investment may suit certain investors who prefer a guaranteed rate of return and are not interested in participating in running the company or in potentially benefitting from additional profits or capital gains. There are also defined terms for the repayment of the debt; subject of course to the business being in a position to make the repayments, so the investor does not have the same concerns as the shareholder regarding getting their investment back out of the company.

In terms of tax benefits for investors, equity funding will often provide the opportunity to take advantage of EIS/SEIS tax schemes which can potentially provide income tax relief of up to 50% of the amount invested and tax free capital gains. These tax benefits are not available for debt funding. EIS/SEIS is discussed in more detail below.

Can a business apply for both equity and debt funding through the same pitch?

Yes! adultXfunding is significantly different from all other crowdfunding websites in that we allow all businesses, including start-ups, to apply for both equity and debt funding.

We anticipate this mixed funding option being taken up by many business owners who want to retain as much equity in their business as possible, and can demonstrate positive cash flow projections that will enable a certain level of debt repayments to be made within the specified debt term. This will also mean that their pitch should attract both types of investors - those who prefer investing in shares as well as those who would rather provide debt and get a fixed rate of return.

How do investment rewards work?

A reward will normally be a gift of goods or a service related to the business of the investment pitch that the business owner offers to investors as an added incentive to make an investment. For example, a start-up business may offer investors the opportunity to be one of the first to own one of the unique new products that they are developing – either free or at a special discount.

Companies can choose to raise funds solely through providing rewards for invetors, or can combine rewards with equity or debt funding.

There is section on each investment pitch for the business to outline the details of any rewards that they are offering investors. If the business is not offering any rewards then this section will not be visible to users.

Once the pitch achieves its funding target and the investment agreements are concluded, the business is responsible for ensuring that every investor receives the reward they are due. All communication relating to the reward, for example to establish sizes or practical issues relating to collecting the reward, should be done by the business directly with the investor.

What are the costs of using adultXfunding?

Investors - There will be no costs for investors to register as a adultXfunding member, browse the website, interact with business owners and other investors, or make investments. adultXfunding will take a 5% commission fee from any equity dividends paid and of any capital gains on the sale of shares. We will also take a commission fee equivalent to 1% of the initial amount of any debt, and this commission will be deducted on a proportional basis each time a repayment is made by a borrower. This fee structure is designed to levy charges only when investors make a return on their investments.

Businesses
Commission fees for businesses on successfully funded pitches will be as follows:

  • £10,000 to £74,999  -  15%
  • £75,000 to £149,999  -  14%
  • £150,000 to £249,999  -  13%
  • £250,000+  -  12%

The above fees are reduced by 1% for companies that are registered members of an adult trade association (see affiliate partners list) and a further 1% for entering in to the AXF Club program.

There is an additional charge of 1% on all the above debt commission rates for businesses that have been trading for less than 2 years.

The commission fee is deducted from the amounts received from the investors. No fee is taken if the pitch does not achieve its funding target.

Legal costs for concluding a successful pitch will be minimised by the use of pro-forma share and debt security agreements. Costs will be recharged based on the level of additional work required to tailor the pro-forma documents to the specific terms of the deal. We do not anticipate these charges being more than £1,000 for a straight forward equity or debt transaction.

There will be an administration charge of £249 for reward pitches and £499 for equity/debt pitches placed on the website, which is payable before the pitch goes live. 

Businesses which raise total investment of £100,000 or more, may be required, as part of their funding agreement, to allow an independent Business Observer access to their business on a regular basis (See Q12 below). If required, the cost of this service will be £5,000 per year for the term of the debt, or until equity investors receive more than their initial investment back in the form of dividends or share proceeds.

adultXfunding may be prepared to take our fees in equity. This would be negotiated on an individual basis with a business prior to a pitch going live.

What feedback will investors receive regarding the business after completion of their investments?

Businesses which raise total investment of £100,000 or more, may be required, as part of their funding agreement, to allow an independent Business Observer access to their business on a regular basis. The role of this Business Observer will be to represent the investors and, as a minimum, attend quarterly Board meetings. They will report back to investors on at least a quarterly basis, keeping them abreast of the company’s ongoing performance against the business plan, and any other significant matters pertaining to their investments.

The business will be able to choose a Business Observer from adultXfunding’s panel of independent experienced professionals. We have assembled an array of successful business people, who between them offer a wide variety of skills and experience. We will aim to provide the business with someone with relevant sector knowledge, who can add value to the management team, as well as being an effective representative for the investors.

Will adultXfunding be registered and regulated by the Financial Conduct Authority (FCA)?

The Financial Conduct Authority (FCA) is an independent non-governmental body, given statutory powers by the Financial Services and Markets Act 2000. They are responsible for regulating and setting standards within the financial services sector in the UK, and can take action against firms if they fail to meet the required standards.

adultXfunding is in the process of submitting an application to the FCA for direct approval, and will ultimately be registered and regulated in its own right.

The crowdfunding industry is currently moving towards self-regulation, with two principal bodies being set up recently:

  • The UK Crowdfunding Association, or UKCFA, was formed in 2012 by fourteen crowdfunding businesses and now has over 40 members. Its aims are to promote crowdfunding as a valuable and viable way for UK businesses, projects or ventures to raise funds; be the voice of all crowdfunding businesses in the UK (donations, debt and equity) to the public, press and policymakers and publish a code of practice that is adopted by UK crowdfunding businesses, that protects those participating in crowdfunding.
  • Peer 2 Peer Finance Association currently has nine members, and has been set up primarily to ensure that this innovative and fast growing sector maintains high minimum standards of protection for consumers and business customers.

 

All investors

Who can invest through adultXfunding?

To invest through adultXfunding you must meet the following criteria:

  • a. Be 18 years old or older
  • b. For equity and debt investments you must meet certain qualified investor criteria
  • c. For reward only pitches anyone meeting the criteria in a and b above can pledge funds to the business

How much can I invest in a pitch?

The minimum investment is normally £100 and the maximum investment through the on-line pitch is £10,000. Businesses may choose to set a higher minimum investment than £100. If you want to invest more than £10,000 in a pitch please contact us at info@adultxfunding.com and we will inform you of the process for making your investment.

How is payment taken for my investment?

When you make an investment commitment on a pitch, you can pay this via a credit or debit card and the funds are held in escrow until the pitch reaches its funding target and the legal documents relating to the investment are completed. 

Payments are taken in this way so that at no time does adultXfunding hold investment money in our account.

Payments by cheque are not accepted.

What happens if the pitch does not reach its investment target after I have invested?

If the pitch you pledged investment in does not make its target we can either offer a refund of your funds or you can move them to another pitch.  

How can I minimise my investment risk?

We encourage investors to spread their investment risk by creating a diverse portfolio of investments. This investment strategy will not alleviate all risks, but spreading your money across a number of investments means that any losses have a better chance of being offset by returns and capital gains.

Are my investments made public on the investment pitch?

Normally your username and date and amount of investment will be shown in the list of investors on the pitch. However when making your investment you can opt to remain anonymous, in which case your username will not be disclosed.

What due diligence does adultXfunding undertake on investment pitches?

We undertake a review of the information that a business provides, and obtain evidence to support factual statements where we feel that it is appropriate to do so. We only post investment pitches that in our opinion provide investors with a clear and unambiguous investment opportunity.

 

Can potential investors communicate with a business that has a pitch on adultXfunding?

1. A pitch blog – this will be used by the business to update investors with news and developments relating to their business, and any new information regarding their business plan. Anything that has changed from the original plan that may have a significant impact on how investors perceive the investment opportunity should be highlighted. Business owners will be encouraged by us to maintain the blog on their pitches to keep the information as up to date as possible and make it easy for investors to see what has changed from the initial pitch without having to re-read the whole business plan.

2. A pitch Q&A – this will be used by registered members to ask any relevant questions to gain further information about the investment opportunity or to query specific aspects of the business plan. Business owners will be expected to reply to all questions within a specified timescale, and we will provide any assistance required in making sure this happens.

3. A one-to-one video conference, which will be facilitated through the adultXfunding platform using our unique Powermeeter functionality. This will give the business owner an opportunity to fully present their investment opportunity and allow potential investors to ask specific questions on a ‘face to face’ basis.

What advice does adultXfunding provide with regard to investment pitches?

We don’t provide any advice relating to investments, and don’t make a judgement on the level of risk associated with specific pitches. Although we only post pitches on our website that we believe are credible investment opportunities, we rely upon the ‘crowd’ making their own assessment as to whether a business is a good investment or not.

Can I cancel my reward or investment?

Yes a reward or an investment (equity/debt) can be cancelled at any time before a pitch reaches its target or minimum tranche. Please e-mail us at info@adultxfunding.com if you wish to cancel.

Once the pitch has reached its target or minimum tranche you will be contacted to reconfirm your reward or investment (equity/debt) and will be provided with the appropriate legal documents, if applicable, with a period of 7 days to review them. You can still cancel your investment (equity/debt) at this point. Reward opportunities cannot be cancelled once reaffirmed.

Once the legal documents have all been completed and signed your investment is fully committed and cannot be cancelled.​

Equity investors

How much equity will I receive for my investment?

The business owner will decide how much equity they are prepared to offer in return for the level of funding they are seeking to raise. An individual investor will therefore receive an equity share that is proportionate to the amount that they invest. For example, if the business offers a 20% share of their company in return for £100,000 total investment, and you invest £5,000 (5% of the total), you will receive 1% of the shares in the business (5% of 20%).

Will investments through adultXfunding qualify for SEIS/EIS relief?

The Seed Enterprise Investment Scheme (SEIS) was introduced in April 2012, and is designed specifically to help smaller companies in the early stages of their development to raise equity finance by offering substantial tax reliefs to individuals who invest in those companies.

Subject to the company being eligible, the type and amount of investment qualifying, and the investor themselves being eligible, relief is available at 50% of the cost of the shares. There are limits of £100,000 per year for an individual investor, and a company can only raise up to £150,000 of SEIS investment, however these limits should be high enough to enable most qualifying start-up businesses to benefit from the scheme.

For larger businesses looking for higher levels of investment the original Enterprise Investment Scheme allows for a company to raise up to £5m in a 12-month period, and for individuals to invest up to £1m in EIS qualifying shares. Income tax relief for the individual is lower than SEIS at 30%, but this still represents a significant incentive for the investor.

There are specific rules and restrictions that apply to both schemes, and we will ensure that a company and its investment pitch qualifies under these rules before allowing it to be promoted on adultXfunding website as a SEIS/EIS qualifying opportunity. As part of the Crowdfunding process, we will ensure that the company submits the required application to HMRC and receives a SEIS/EIS qualifying assurance certificate.

Full details of the eligibility rules are on the HMRC website, however the main criteria are:

  • The investment must be in full-risk Ordinary shares (debt funding is not eligible) 
  • The investor cannot hold more than 30% of the Ordinary share capital of the company 
  • The investor cannot be an employee or a paid Director of the company
  • Shares must be held for at least 3 years from the date of issue 
  • The company must not carry on an ineligible trade, such as:
    o Financial services
    o Legal or accounting services
    o Property dealing or investment
    o Hotels or nursing homes

As well as Income Tax relief, the SEIS/EIS investor benefits from not having to pay Capital Gains Tax on any profit on the sale of the shares.

Finally, if the investor makes a loss on the sale of the shares, then that loss, less any Income Tax relief received, can be set against other taxable income in the year that the loss is made. This is an extremely important feature of the SEIS/EIS schemes, in that investors, who suffer a loss due to the company not performing to plan, or failing altogether, can recoup a large proportion of their money through a reduction in their personal tax liabilities.

How do I make money from my equity investment?

There are two ways to make money on your equity investment – dividends and a capital gain on the sale of your shares.

Dividends may be paid out by the company if it makes sufficient profits and decides to distribute some of its reserves to the shareholders. However, there is no certainty that even if the company is profitable that the controlling shareholder will decide to make a dividend payment, and unless you have preference shares with a guaranteed level of dividend, then there are no guarantees you will ever receive a dividend.

The most likely return for you is from a sale of your shares. This could happen if the business is bought out by another company, floats on the stock exchange, or you sell your shares to another private investor. The possibility of the first two options happening may be outlined in the pitch business plan, and if not, you are free to question the business owner on the likelihood of a future sale or stock exchange listing.

Debt Funders

How do I provide debt funding?

You place a debt funding bid on the pitch that you want to invest in, and select the amount you are prepared to provide and the interest rate at which you are prepared to provide it.

Once the pitch closes, if your bid has been successful then you will hold a debt security instrument that will entitle you to monthly payments at the rate you bid.
 
There may be a situation where the amount that is accepted is less than the amount you bid. This can happen when the rate you have bid has been undercut by other investors, and the business only requires a portion of your bid in order to reach the funding target.

Can I request repayment of my debt funding before the end of the agreed term?

No, once the debt has been provided the repayments will be made in line with the terms of the debt securities instrument, unless the business is in a position to and decides to repay the debt early.

Is the debt funding guaranteed or secured?

We will endeavour to secure your debt over assets owned by the business. If the business uses the debt to purchase a specific asset then the loan will be secured over that asset. Where the debt is used for other purposes, for example working capital, we will put in place a fixed and floating charge over all the assets of the company. Where the business does not have sufficient assets to cover the size of the debt, we will seek to obtain personal guarantee(s) from the company director(s).

The type of security and/or guarantee being offered will be highlighted in the investment pitch. Full terms and conditions relating to guarantees and securities will be provided within the debt security instrument.

What are the Income Tax implications for debt funding?

Debt repayments and interest are paid without deduction of tax. You are therefore required to declare all interest received on your self-assessment tax return. Advice should be sought from a professional tax advisor if you are in any doubt as to your tax position.

What is the tax position if the debt is not fully recovered?

Tax relief is normally available on losses on irrecoverable debts that are provided to UK businesses and the money has been used wholly for the purposes of a trade. Full details of tax relief on irrecoverable debts can be obtained from HMRC or from your tax advisor.

What happens if the business misses a debt repayment?

If the business misses a payment or only makes a partial payment of the amount due to you and the other investors, we, through an agent acting on our behalf, will contact the business to inform them that they will reattempt to collect the outstanding payment in respect of that debt the working day after the payment was due. If this reattempt to collect the funds fails 3 working days after the payment was due, the business's account will be treated as an overdue account and our agent will continue to attempt to collect the funds. The missed payment may be referred to a collections agency (the "Collections Agency"), who will attempt to collect the money on your and any other investors’ behalf and you authorise us to use the Collections Agency on your behalf. Any fee that the Collections Agency charges for this initial debt chasing will be added to the debt amounts they are seeking to collect and will not reduce the amount available for distribution to investors.

If the business misses, fails to pay or only partially pays two or more consecutive monthly instalments or three out of six consecutive monthly instalments, the debt will be placed into default and the Collections Agency will engage field agents to attempt to collect the total debt amount outstanding. The Collections Agency may deduct up to 40% of the amount it recovers from the business and the remaining proceeds will be distributed to investors; where possible this fee will be added on to the debt amount outstanding so as not to reduce the amount investors receive.

If the Collections Agency is still unable to collect the debt they will then investigate with solicitors the amount of debt that is likely to be successfully recovered through the courts. If deemed appropriate, the Collections Agency will instruct solicitors to file court claims to recover the debt. Investors will receive a proportionate share of any funds successfully recovered, less the costs incurred during that recovery. The Collection Agency will act in a fair and equitable manner to achieve maximum recovery for all affected investors, which may include extending payment terms or selling the debt to a third party.

The investor should refer to the terms and conditions of the Debt Securities Instrument regarding defaults.

What happens if a business becomes insolvent before repaying a debt?

If a business becomes insolvent, and the debt has a personal guarantee,we will appoint a debt collection agency to pursue the guarantors for the unpaid sums due. If the debt has a fixed and floating charge security agreement attached, the debt collection agency will attempt to realise the assets of the business to repay the sums due to investors. If the debt has specific asset security, the debt collection agency will take possession of the asset and attempt to realise this asset to repay the sums due to investors. If the debt does not have any security, the debt collection agency will attempt to recover the maximum amount possible as a creditor of the business through the courts.

The investor should refer to the terms and conditions of the Debt Security Instrument regarding defaults.

Can a business repay the debt early?

Yes a business can repay the debt in full before the end of the term. You will be paid the full outstanding capital balance plus interest up to the end of the month in which the debt is repaid. Partial settlement of debts is not allowed.

Business

What businesses are eligible to raise funding on adultXfunding?

The definition of ‘business’ is important to consider. We receive applications for funding from a very wide spectrum of people and organisations. For example, an individual who has developed a product or an idea and requires funding to get it to market can be considered a business, in the same way that an established company that has been trading for a number of years. We also consider projects that are essentially non-profit making organisations if they are able to generate investment due to them being of interest to a specific group of people – for example local social enterprises and film projects.

The main types of businesses we raise funding for are:

  • Start-ups – from all industry sectors of the adult entertainment industry
  • Businesses still in early stages of development
  • Companies who have had bank facilities squeezed and require additional funding to support the working capital of a viable business
  • Companies that require funding for expansion or acquisition
  • Those requiring asset purchase funding who can’t secure competitive facilities from normal debt funders 

This list is not all encompassing, and we will consider all viable investment opportunities. The only stipulation will be that the business is required to be a registered company based on the location of the business.

How much can I raise on a adultXfunding investment pitch?

We do not have any strict minimum and maximum amounts that can be raised on an investment pitch. Our aim is for most pitches to be between £30,000 and £250,000, however we will consider pitches below and above these amounts if we believe that they will attract sufficient investor interest to meet their funding target.

Can a business have more than one investment pitch running concurrently

Yes, a business can run two pitches concurrently so long as they are both related to the same funding project. For example, one pitch may be a reward only pitch and the other an equity investment pitch, both aimed at raising funds for the same project.

Can a pitch be amended after it goes live?

Yes, pitches can be updated, however all amendments must be approved by adultXfunding. All updates should be detailed on the news/updates tab on the pitch to ensure that members are made aware of the changes and can see exactly what they are without doing a detailed comparison of the revised pitch against the original pitch.

The news/updates page can also be used to promote any business developments since the pitch went live. This can be linked to social media channels to increase exposure.

All committed investors and members who have signed up to follow your pitch will also be automatically notified of any amendments to your pitch.

How much equity should I offer in return for the target amount of funding?

It is up to the business owner to offer what they feel is a fair and reasonable share in their business in return for the amount of funding they are trying to raise. Investors are not able to make investment bids for an equity stake, and have to commit to invest at the offered level of equity stake or not invest at all.

The business owner should aim to pitch the equity stake on offer at a level that is going to be attractive to potential investors. For example, if a start-up pre-revenue business offers only 5% equity in return for £100,000 of funding, then they are effectively valuing the business at £2,000,000, which in most cases will prove to be unreasonable and it is unlikely that the pitch will achieve its target.

For most business owners the key to a successful pitch will be to achieve a balance between offering value to investors and not relinquishing too much equity. Unfortunately there is no magic formula for establishing what this optimum figure will be, and the business owner should try and view the pitch from the viewpoint of an interested investor when trying to assess what is likely to attract investments.

Can the amount of equity on offer be amended?

The business cannot reduce the amount of equity being offered once the pitch goes live, but can increase it, so long as all investors benefit from the increased offer. Increasing the amount of equity on offer will obviously be a possible action to take if the pitch is slow to generate investment interest.

Can a pitch raise more than its target funding?

Not normally but (yes) in certain limited circumstances (see below). Equity pitches can be extended once they achieve their target but only with prior agreement with adultXfunding (which may canvass the views of committed investors). And although bids can continue to be placed on a debt funding pitch after it achieves its target, this only serves the purpose of attracting lower interest bids, and the business owner can only accept bids to the value of the funding target.

What happens if I secure funding from another source while the pitch is live?

Notify us and we will add it to your pitch investment total.

Can the pitch target be amended once the pitch goes live?

Not normally, however there are two scenarios that may see us allowing a pitch target to be altered. Firstly, if a pitch is fully funded relatively quickly and there is clearly an appetite for more investment, then we may allow the business to offer up more equity for a higher investment target. Secondly, if a pitch reaches a significant percentage of its target but can’t achieve the full amount within the maximum pitch life, we may allow the business to approach the investors who committed to making an investment with a revised business plan that is supported by the lower amount of funding.

Where does the crowd of investors come from?

We actively market the adultXfunding website and specific investment pitches to potential investors, through a combination of targeted social media, PR activity, conferences and events, as well as ensuring that our website features prominently on the major internet search engines.

Our targets for equity and debt pitches are Investors, who meet the criteria of being sufficiently sophisticated to understand the risks of making investments.

For reward only pitches, the target will be those who may have an interest in the company or in the products or services being offered as a reward.

While adultXfunding carry out marketing activities the onus is still on the pitching business to promote their pitch and attract potential investors.

Can a business close a pitch early?

Yes, a pitch can be closed at any time.

Can I invest in my own pitch?

Yes of course, and you should encourage all your friends, family, etc to do so as well subject to them being eligible to invest in equity and debt pitches.

How do I protect the confidentiality of my business idea or product?

Unfortunately it is not possible to keep a business idea or product completely confidential while trying to raise funding for it. Potential investors will want as much information as possible to assist them in assessing the risk involved and the likelihood of making a return or gain through investing money in your company. In fact, we would encourage you to provide as much information as possible so that potential investors can clearly see the full potential of your business.

Our view is that if you are concerned about telling people about your idea or product in case someone steals it then you don’t have a viable business model in the first place. You don’t need to disclose the magic formula that makes your product or idea unique and special, just how and what you will achieve by taking it to market. In addition, if you are developing a new product or concept you should ensure that it is protected through copyright and patents. A product or an idea that can be easily copied and brought to market quickly by a competitor may not be the great business model that you think.

What type of equity should I issue to investors?

We normally recommend that you issue ordinary share capital with full voting rights. This is the simplest type of equity investment for an investor, and means that they share in the company’s success in the same way as the business owners, on a pro-rata basis in relation to their percentage shareholding.

Some businesses may chose to only offer full voting rights to those who invest more than a pre-set qualifying level.

Does this mean that I could potentially have hundreds of shareholders with voting rights to deal with?

No, adultXfunding will arrange for an independent entity to hold the shares proxy rights in respect of all shares issued. This is a common method of dealing with large numbers of minority shareholders, and it means that  you will only have to deal with one entity on all matters such as voting rights.

How will the Proxy manage the shareholders’ interests?

The Proxy will normally take a back seat and leave the company management to run the business. Shareholders’ interests will be protected through specific terms in the investment agreement, which may require a vote is taken to pass certain resolutions. In these cases the Proxy will normally solicit feedback from the individual investors as to their voting preference, and cast the block of votes in a pro-rata basis from the votes received from the shareholders.

Will adultXfunding provide my business with mentor support?

Yes, we will discuss this with you when you make your pitch application, and will identify the specific areas in which you require mentor support. We will then try and match your requirements with some of our registered investors who have expertise or experience in that area. With a crowd of investors there is a good chance of getting an investor that can be beneficial to your business.

We can also pair you with our approved consultants and advisors, or the many affiliated businesses that cover a wide range of services.

Will you provide the investors with regular updates on how my business is performing?

Yes, we will keep the investors up to date with any updates you send us, including accounts, media reports and other relevant information.

Businesses which raise total investment of £100,000 or more, may be required, as part of their funding agreement, to allow an independent Business Observer access to their business on a regular basis. The role of this Business Observer will be to represent the investors and, as a minimum, attend quarterly Board meetings. They will report back to investors on at least a quarterly basis, keeping them abreast of the company’s ongoing performance against the business plan, and any other significant matters pertaining to their investments.

The business will be able to choose a Business Observer from adultXfunding's panel of independent experienced professionals. We have assembled an array of successful business people, who between them offer a wide variety of skills and experience. We will aim to provide the business with someone who has relevant sector knowledge, who can add value to the management team, as well as being an effective representative for the investors.

What can I use the money that I raise for?

The business plan that you submit with your pitch application will outline what you intend using the money for. This is the basis on which you have raised the funding from the investors, and they will expect you to use it in this way.

However we recognise that businesses need to be flexible and adapt to changes in their operating environment, and as such you may find a better way to spend the money to grow your business. In these cases you should communicate this to the investors, and in exceptional cases seek their approval before proceeding.

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