Equity Crowdfunding might be one of the more unconventional ways of raising investment, but that does not mean it should be overlooked. With the right product and campaign strategy, businesses have been able to raise required capital at much lower cost and with no impact on their gearing ratios. British crowdfunders invested £49.6m in the third quarter of 2018 (Beauhurst (1)), facilitating 82 deals.
Crowdfunding allows the growing business to access a new market of funders who, without such platforms, may choose to not to invest at all. Contributors to equity crowdfunding rounds are acting as smaller-scale business angels with each investment they make; the platform simply facilitates lots of investors working together.
A crowdfunding platform shouldn’t be seen as a shortcut to accessing finance as you need to evidence traction in the market. ‘Traction’ doesn’t necessarily mean track record. An established business may wish to evidence that they already have a foothold in the market and that their new strategy will enable them to build on their existing position. For a start-up, traction means having a measurable set of customers or users that demonstrates to a potential investor that your start-up is “going places”.
Below are 5 top tips in order for you to run a successful crowd funding campaign and give you a better chance of standing out in the crowd.
Crowdfunding is a great way to find out if your business is well received by others. Whether you’re an established business with an extensive customer base or a start-up looking to launch a product/service, your business pitch should be detailed, simple and easy to follow. Too many functions, revenue streams, business lines may confuse an investor. This is different to securing a new contract/customer who presumably already knows what you do so be prepared to shake up your pitch tactics and ensure that your pitch covers the basics of what you do, what you hope to achieve and how to plan to achieve it.
A Social Media Campaign
An established crowdfunding platform such as Crowdcube, Seedrs or Syndicate Room will have an existing user database, though it would be foolish to assume that this will be sufficient to achieve your target. You need to reach out to your existing network – family, friends, customers, suppliers and business angels etc – to drive the crowdfunding campaign. Nobody wants to write the first cheque so you should be prepared to do significant legwork in your ‘Pre-Campaign’ to generate interest in your cause. Social Media is the perfect tool to do this. Get ahead of the game and notify your social media network well before your campaign launches on a platform. Create a series of business ‘updates’ throughout your campaign. Ensure that these updates relate to both the crowdfunding progress and the commercial progress of the business; each is dependent on the other.
Know Your Business
It goes without saying that you should know the ins-and-outs of your business plan before launching on any platform, but there will undoubtedly be some things which you haven’t thought about. It’s important to have as many answers to as many questions as possible before your campaign launch. Nearly all platforms have the facility for potential investors to raise questions to the management team; and investors will expect detailed and well supported answers. Examples may include: The details of your short-term marketing scheme, the rationale behind your expected Year 3 cost savings, directors’ salary costs or justification of your valuation.
Create A crowdfunding Video
A campaign video is a great way to engage with the investor pool by conveying a lot of information in a manageable format. People are funding you as much as your project so let them see your passion and get excited with you. Be yourself, this is an easy way to tell your story of the business and introduce your management team whilst building a rapport with potential investors.
Your business valuation is arguably the most important part of your crowdfunding campaign as it has the power to instantly attract or deter investors. So what is the key to reaching the right business valuation? For your particular business, there may be no one “right” answer. It’s more appropriate to do your research, demonstrating how you have already created value with measured milestones to date and justifying your valuation with clear growth plans in a financial forecast.
Consider other companies in your industry and their recent fundraises. How do you compare in terms of stage of development, market size, management experience, market traction?
Consider the general economy and the willingness of potential investors to take a risk on early stage companies. Your valuation will needs to be adjusted in line with the broader economy.
Consider your potential exit strategies in the future and work backwards from here. What did these companies achieve in their lifetime and how does this compare to your forecast expectations?