The dos and don’ts of equity crowdfunding
In Planning growth, Raising finance, Sustaining growth - 11 months ago - 5 min
The dos and don’ts of equity crowdfunding
Guest Author: Crowdcube
When raising finance through equity crowdfunding there are a few things entrepreneurs definitely should do, and others they shouldn’t do to maximise chances of funding success. Although some may seem obvious, it’s worth highlighting them if you’re considering crowdfunding as a source of finance for your business.
Let’s start with the must-dos you should ensure you tick off in the run-up to launching a crowdfunding pitch, and during your live campaign:
- Do speak to potential investors to get feedback on your pitch before you launch, including how you’ve explained your business proposition and the valuation you’ve set. This feedback will be invaluable, but of course, nothing beats a confirmed commitment of investment, which will also provide a proof point for other investors considering backing your business.
- Do learn from others. Hundreds of businesses have now successfully raised investment through crowdfunding, so take a look at companies from your sector that have raised a similar amount of finance that you’re seeking, so you know what success looks like. Study their pitch, learn how they promoted their campaign, what rewards they offered and how they priced their round. You can find all the funded businesses on Crowdcube, here.
- Do make sure your investment proposition is firmly targeting investors, not just your customers. This may sound obvious, but we’ve seen many companies fall into the trap of selling their product when writing their pitch or video script, as this is what you do day-in-day-out – promote your product or service to customers. Think of how you can position and promote your business as an investment proposition, whether it’s through your commercial performance, showcasing key customers, partnerships or media traction etc. You will, of course, need to explain your product or service and the problem it is trying to solve, but don’t forget to cover how investors may see a return on their investment as ultimately, this is their end goal.
- Do back up any claims or stats in your pitch with verifiable third-party evidence. As your pitch is a regulated financial promotion, it will go through an approval process with the crowdfunding platform, which will check that any claims, facts or figures in your pitch are fair, clear and not misleading and that they can be backed up with third-party evidence. For example, if you’ve stated that the market size is worth £1bn, you will need to provide third-party evidence to support that claim.
- Do know the ins and outs of your financials. Imagine you’re presenting on Dragons Den, but instead of being asked questions in front of four dragons, it’ll be via an online forum or during investor meetups and events. It’s always best to be prepared.
Based on our experience of successfully funding over 600 businesses, here are a few things we think should be avoided before and during a crowdfunding campaign:
- Don’t assume people know or remember what your company does, or what equity crowdfunding is, assumed knowledge is an easy trap to fall in to. You’ll need to think about your wider network and targeting people with different messages. For example, discussing your crowdfunding round with angels will be quite a different conversation than with your friends.
- Don’t set an unrealistic valuation. An over-optimistic valuation is one of the most common reasons why an equity crowdfunding raise will fail. When setting your company’s valuation, you will need to do your research into your industry and look at other businesses similar to yours – size, sector, traction, valuations and be realistic. You’ll need to demonstrate how you have already created value and justify your valuation with clear growth plans. In a previous blog, which you can read here, we discussed the importance of getting your valuation right.
- Don’t be shy. Now is the time to spread the word about what you’re doing as far and wide as possible. You’ll need to contact your wider network and get in touch with angel networks to drum up as much interest as possible. From family and friends to customers, business contacts and your network – tell everyone who’s had connections with your business that you’re raising investment and that they can be a part of it.
- Don’t go on holiday when you are running your campaign. Businesses that reach their investment target will need to manage investor enquiries and possibly have meetings with them, as well as manage the ongoing promotional activity required during a crowdfunding round to maintain momentum and interest. The most significant investment you’ll need to make when crowdfunding is your time, make sure you’re able to give your raise the time it needs and deserves.
- Don’t forget to reply to investors. Every equity crowdfunding campaign has a forum, which is an online discussion area where prospective investors can openly ask questions to the team. You’ll need to manage this alongside investor communications effectively throughout your raise, as this may not only influence the investor’s decision but others that are considering investing in your business too.
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When you’re ready to take your business to the next level and looking for an injection of cash, crowdfunding may be the right option for you.
G supports small business leaders through the Crowdfunding Ready service to develop the perfect campaign page, and ensure their investment opportunity stands out to the crowd.
If you are thinking about raising investment for your business and want to understand your options, get some free guidance from one of our team today on 08081 722350 or drop us an email: G.Enquiries@uk.gt.com