10 things you should understand before you equity crowdfund
Are you thinking of crowdfunding? Here are 10 things you should understand before you get started.
1. Much of the investment will come from your network
Though crowdfunding platforms will give you access to a group of investors that you might not have had access to otherwise, this is not their primary function. Instead, you should consider the platform as a tool to give your network of contacts the opportunity to own a stake in your business. Most of the first 100% of the investment in your campaign will come from your own wider network of contacts: known investors, family, friends, friends of friends, acquaintances, customers etc.
2. You need a lead investor (or two)
Crowdfunding is about herd mentality. People are generally risk-averse and tend to back winners. So if you want to convince the crowd to back your project, you need to provide them with sufficient validation in the form of investors who have already taken the risk. Also known as cornerstone investors, these people will be willing to invest larger sums (think 5 figures and over) in your venture at the beginning of your campaign. The crowd will be taking their cue from what they see as smarter or more experienced investors so this is a key part of a successful campaign.
3. Crowdfunding takes time...
There is a lot going into a crowdfunding campaign: articulating your proposition, writing content, scripting and shooting a video, getting your financials in order, implementing a thorough marketing strategy, ... All this takes time so if you’re hoping that you can just quickly throw a campaign together and people will throw money at it, you are in for a rude awakening. As a reference, we estimate that with our programme of support it will take 10 weeks to prepare a campaign for launch based on our clients putting in an average of 15 hours of work a week.
4. …and effort!
There is no such thing as easy money. If you want capital for your business, you’ll have to work hard at it, crowdfunding is no exception. In the run-up to your campaign, you’ll need to put yourself out there and do some hard graft to warm up your crowd so they are ready to invest as soon as you open the opportunity to them. And once your campaign is live, the hard work doesn’t stop. You’ll want to attend meetings and events and ramp up your marketing efforts until the campaign has reached its successful conclusion.
5. Investors expect returns
Equity crowdfunding isn’t charity. Your investors aren’t just donating their money, they very much hope to see a return on it. Before you seek any form of investment, you should be able to articulate how investors might in the future get their money back. It’s unreasonable to expect the crowd to buy into your future if you can’t explain what success may look like for them.
6. Traction helps
If you are at the concept stage, you are facing an upwards battle trying to convince the crowd to back your project. Remember that people are naturally risk averse so it’s a lot easier to convince people that your product is a good one if you have at least a prototype or MVP. Even better if you’re trading already and have happy customers providing validation for your idea. And when it comes to harnessing the power of your crowd, having established networks and social media channels will come in very handy. In some cases, it might be smarter to come to the crowd once you are a bit more established.
7. You can’t delegate all of it
We often remind our clients that people invest in people. No one knows and loves your business as you do. So while in theory, you could delegate all of the crowdfunding and hard graft to your team or a consultant, we really wouldn’t recommend it. Of course, if you have a team, you should make full use of it, teamwork does make dream work after all. But you need to be visible at the helm of the ship. You need to be out there, speaking to your own contacts, answering questions and relaying your passion, no one can do this quite like you.
8. There are costs involved
We’ve all heard the saying “it takes money to make money”. This is true of crowdfunding too. To get your campaign looking as slick as can be, you’ll need to put a budget aside for graphic design, videography and marketing. If you’re lucky, you might be able to pull a few favours with friends but most people should factor those costs in when looking at crowdfunding.
9. Crowdfunding campaigns are (generally) public
Crowdfunding platforms are public. Once your campaign is on there, everyone and their dog can see your pitch and ask for access to your investor deck. That’s kind of the point; you want as many people as possible looking at the opportunity you’re presenting. So if you have concerns about commercially sensitive information and confidentiality, bear that in mind before making your pitch public.
10. It’s not quick money
If you’re under time pressure to have money in the bank, crowdfunding might not be for you. Beyond the time it takes to prepare your campaign, once you’ve launched, it could be live on the platform for up to 60 days. Then when your campaign closes, the completion process typically takes one to three months. So from the moment you start preparing your campaign to the moment you get the money in your bank account, you could easily be six months down the line.
Crowdfunding is about so much more than just raising capital and it is worth keeping that in mind when working on your campaign. It is a great way to engage your community to give them a stake in your business and become a part of your future. It’s also a fantastic marketing tool which can help you increase brand awareness, gain early adopters and brand ambassadors and create a positive PR trail for future investment rounds.
Are you ready to find out how we can help your campaign to be successful? Book a call now.