You may have noticed lately that there’s a lot of talk about Equity Crowdfunding. The industry is growing fast with increasing numbers of investors seeking to get in on the ground floor of the latest ventures. It presents a huge opportunity to Entrepreneurs to attract investment into their company but to most of us, Crowdfunding is a relatively new concept. Let alone Equity Crowdfunding specifically. So how does one ‘do’ Equity Crowdfunding?
Worry not my Startup brethren! For the past 6 months I’ve been kicking it at Crowdcube, one of the worlds leading Equity Crowdfunding companies, and in that time I have learnt much. I’ve seen success and failure and have been fascinated to understand what makes a good Equity Crowdfunding Campaign. Thankfully for you, I’m not the secretive type. Behold! The 20 rules of Equity Crowdfunding…
1) Take ownership of your Campaign. If you’re not making this a priority, why should anyone else? I’ve seen a husband and wife Startup out perform a 20 year old company with a team of 25 simply because at every level, they were involved. The way you manage your campaign is a representation of the way you do business and investors like to know that you’re committed at every level. Responding to questions, following up on enquiries and thanking people for their interest. All the basic courtesy’s of commerce need to be an inherent part of your Campaign.
2) It’s good to talk.
Whether it’s praise from a fan, or criticism from a sceptic. Engage, Interact and Connect. Investors of all sizes want to feel comfortable not just with the company, but the people behind it. Make yourself available to the Crowd and be prepared to tell them your story.
3) Keep it simple. If you can’t explain the basic premise in a few sentences, it’s too complex.
4) Crowdfunding isn’t easy.
It takes hard work to launch a successful campaign. Your campaign is a representation of your business and in that sense, you need to be willing to get involved in every aspect of it.
5) Be clear about what you need and what you want. Your initial target should be the minimum amount of funding that your company needs to accomplish its goals. The maximum should be the maximum equity that you’re happy to give away.
6) Each member of the Crowd deserves your time, you never know where a conversation might lead.
8) Think carefully before engaging a Crowdfunding Consultant (yes, they do exist). There’s nothing wrong with getting a little help with your campaign, so long as you don’t forget rule number 1.
9) Choose your platform carefully. There are a variety of platforms out there but whoever you deal with, there are a few critical considerations. How big is their user base? What quality of campaigns have they helped to fund in the past? Contact the companies who’ve used them in the past and ask them how their experience was. Also, some Crowdfunding platforms take a stake in some of your future equity raises.
11) ‘Your’ Crowd should rally ‘The’ Crowd.
A good Crowdfunding campaign should start with your own network and spread out from there. It’s a common misconception that Crowdfunding campaigns simply go online and hey presto they’re funded. If you don’t have an initial network of your own, then start building one. Friends, Family, Customers, Colleagues (past & present), anyone who can give your campaign the initial traction to make others take note. In some cases, that might be tough to accomplish but remember rule number 4.
12) The Crowd can offer more than just money, keep an open mind. I’ve known companies to secure new customers, international partners and even a new board member via their Crowdfunding campaign. Remember rule number 6.
13) Avoid Empty Restaurant Syndrome.
There’s a social/psychological element to Crowdfunding that’s indicative of human nature. When getting involved in something new (and risky), it’s comforting to know that you’re not the only one. No matter how great your campaign, investors will always hesitate to be the first through the door. Thankfully, once a line forms we all want to know what’s at the front of it. The longer the line, the greater the intrigue. If you’re unsure where your line will come from, see rule number 11.
14) Keep it real. You can be as positive as you like, so long as you remain realistic. At the same time, don’t be overly conservative. Any investor worth their salt will appreciate that your projections are just that, projections. Just try to keep in mind that if you have a best case scenario and a worst case scenario, the information you present to the Crowd should be somewhere in the middle.
15) Show your workings.
Remember in school, when you were always asked to show your workings even if you weren’t confident of the answer? Well, there’s a really good reason for that. If a prospective investor wants to know how you intend to acquire that many customers per month or how you’re building your financials, you need to be able to show them. Often, there is no right or wrong answer but it’s important to help the Crowd understand your rationale. If you’re worried about what they might think, see rule number 7. Then, see rule number 14.
16) Set a realistic Valuation.
There are many methods for calculating a company’s valuation but ultimately there is no single formula to provide a definitive number which is beyond question. Company valuation remains a point of negotiation which combines objective and subjective factors like EBITDA and Brand. Whatever your valuation, remember points number 14 and 15.
17) Learn to think like an Investor. The best Entrepreneurs understand their Investors like the best companies understand their Customers. You need to know what kind of information Investors seek and be able to provide it quickly. As the Entrepreneur, you’re privy to an abundance of detail about your company but the Investor doesn’t need to know all of that. Understanding how Investors think will help you you focus on giving them the information they want.
18) Take a common sense approach.
Once your campaign gets going you can find yourself getting involved in some pretty complex discussions around topics like company valuation, financial forecasts, exit strategies etc. At all times, try to take a common sense approach to the discussion. If you feel you’re at risk of getting lost in finer detail keep in mind the point of the discussion. What is the impact on the business? How does this influence whether someone might want to invest?
19) Be ready to prove your brilliance. Due diligence is an integral part of the investment landscape. Any potential investor you speak to will do their own due diligence on you and your company before they invest. Financial, Legal and Commercial aspects of your company should all be properly verified. Anything from checking your professional credentials to asking for proof of your patent applications. A good Crowdfunding platform will help you to do this, so remember point 9.
20) You can’t please everyone. As brilliant as your Campaign might be, there will always be people who don’t buy in. Some may even dislike your idea. Obviously, it’s your job to convert as many people as you can. Whenever someone has a negative reaction to your campaign you should always engage with them to understand and if possible, overcome their hesitations. However, in some cases despite your best efforts you may not be able to make a fan out of everyone. If you’ve laid out your argument as best you can and feel as though there’s nothing more to be said, it’s ok to take an adult approach and agree to hold a difference of opinion.