For start-ups, raising money is the single most important thing you do in order to grow. If you’re considering equity crowdfunding for your business here’s what you need to know.
Since our launch in 2012, we have funded 490 deals had over £210 million invested into campaigns on the platform, making us the most active investor in UK private companies (Beauhurst, 2017).
It’s not one or the other; there is a common misconception that a business either equity crowdfunding or raises from institutions, and this is just not the case. On the Seedrs platform we’ve seen an increasing number of co-investment rounds with big name VC firms such as Draper Esprit, Unilever Ventures and Passion Capital.
It’s not just for early-stage businesses: we help early stage businesses of all sizes, however working with more and more growth/later-stage businesses and we often hear that the reason that later-stage businesses are increasingly using Seedrs as their platform of choice is because it’s just easier and quicker to raise the funds and execute the deal, as well as benefitting from the exposure and customer engagement obtained by fund raising in this public way.
Understand why are you looking to equity crowdfund. Having a clear strategy as to why you are looking to raise via equity crowdfunding is key.
Yes the money is important but it is a very public way of raising capital so if your business isn’t interested in benefitting from having hundreds and thousands of investors acting as brand ambassadors and evangelist of the business, or the market exposure you can get from doing a crowd raise, then this financing route might not be best for the business.
Do you have a community/network to engage with your raise?
When running a crowdfunding campaign your own community, and your ability to reach them, are vital to the success of the campaign.
They provide early support and investment to the campaign that piques the interest of those investors that have not heard of the business before. You might have a fantastic business but without a semblance of some sort of a community, equity crowdfunding is not right for you at this stage.
Crowdfunding is not as simple as putting up a campaign and watching the money roll in (unfortunately!). Raising investment, in whatever format you decide, should be understood as all-encompassing and a lot of hard work.
It can be really helpful to have a dedicated person owning the campaign and managing everything to do with it. On Seedrs we see a strong correlation between prompt responses to investor questions and that investor going on to invest in your business.
Be a stickler for grammar
Ensuring you sound professional and reliable at all times is really important. Make sure everything is proof-read, from the written campaign to the answers in the Q&A section. It is really easy to type things up on your phone when you’re on the go or in a rush, but make sure it all looks and sounds slick before pressing post as those little mistakes can be damaging to an investor’s trust.
Preparation is key
Crowdfunding campaigns can run on Seedrs for up to 60 days, which might sound like a long time but it tends to disappear in a flash once you get going. There is a link between the how quickly a company reaches their target and how much effort went into the preparation. It’s not an easy feat, so spending some time getting all your ducks in a row before going live is key.
Write a stand-out pitch
Your campaign page is the most important thing to get right. You won’t get to meet all the prospective investors that visit the page face-to-face so you have to get a compelling story across in a written pitch and a three-minute video.
This isn’t an easy task but having focus should help you: what do you do, what is the market potential, what is your intended impact and what are you going to do with the money raised. Keep it clear, concise and compelling with a few standout points designed into graphics so it’s not all one block of text.
Aim for a focused yet fun video
Crowdfunding videos don’t have to be expensive, but they’re one of the most important aspects of your campaign page so it is crucial to get it right.
This is the investor’s chance to get to know you and it is a very small window of time (approx 2-3 minutes). You need it to be snappy, engaging and insightful. Ensure you tell your story but don’t omit talking about your service/product and its market potential, as this is a pitch to investors.
Will your investors be looked after?
It’s brilliant if hundreds/thousands of people want to invest into your business, however you must think about how you are going to manage and look after them.
At Seedrs we offer a full service nominee, which means that we can act on behalf of your crowd investors and take care of all of the administrative work so that the company doesn’t have to. We also provide a investor relations portal so that you can keep your investors engaged and benefit from their support.
The power of overfunding
Have a clear idea of exactly how much capital you need to get to your next growth milestones. Set that as your target but also be aware that you can choose to overfund and raise further investment to help accelerate your growth. Overfunding is a great way to attract further investment and also act as further validation for your business.
The crowd is not ‘dumb money’: The crowd is a diverse and savvy bunch, just go onto the Q&A section of any campaign on Seedrs. Top five professions of investors on Seedrs are found in finance, investment funds, self-certified angel investors, business founders, and legal professionals.
They work in business daily and know how to value early stage businesses and the risks involved with investing in this early stage asset class. Diverse experiences, backgrounds, expertise and capital all contribute to whether a business reaches its funding target.
Tom Horbye is senior campaigns associate at Seedrs.
Further reading on equity crowdfunding
Looking for finance? SmallBusiness.co.uk is working in partnership with trusted lenders to find the best business funding deals. Find out more here.