10 tips for equity crowdfunding success

28 May

Written By Marc H

There are several ways of raising capital for your startup, but few come with the flexibility and speed of equity crowdfunding - though it is not without its perils!

Following three successful fundraising campaigns and the launch of my equity crowdfunding consultancy at marchartog.xyz, I share below some tips on how to succeed.

If you would like to discuss whether equity crowdfunding is right for your business and how I may be able to help fast-track a successful campaign to fund your business, please get in touch via march@rtog.xyz

Consider your options

Prior to equity crowdfunding, I looked at traditional finance options but they were all cumbersome, relatively expensive and our balance sheet didn’t really support it. I explored crowd-borrowing but it’s also expensive and requires personal guarantees.

We were too small and the wrong profile for private equity and in any case my head had been turned by the idea of crowdfunding - initially thinking about individual projects, but as soon as I started looking into equity crowdfunding I knew it was the right route to raise the more significant working capital we needed to grow the business.

It is important to consider all of your options, but if you run an early to mid-stage business with an exciting narrative, interesting plans and solid leadership, crowdfunding (if done right) can strengthen your board, balance sheet & team, and win a new cohort of ambassadors for your business - alongside the all-important cash injection.

Timing is key

Crowdfunding is quick, relative to a venture capital round - but from conception to completion can still take in the region of three months. And you should expect them to be some of the most extraordinary three months of your professional life.

There are three distinct phases of a campaign to consider, starting with the creation of a marketing campaign to build momentum in the crucial build-up (FOMO stage), then the fundraising window itself (execution stage), and the immediate aftermath (consolidation phase), which is often overlooked.

The planning and pre-marketing phase is critical to get right and can take up to half of the entire timetable - in my first campaign, this helped us to hit our initial target within 36 hours of going live, and capitalize on that positive momentum to propel us to 250% overfunded with £400,000 raised after just 8 days, at which point we closed the campaign early (a mistake in hindsight).

I imagine if it hadn’t gone so well we may not have done it again but, as it was, Crowdcube called it a ‘dream raise’, and I have subsequently secured funding twice more via this route, alongside investing in and advising businesses in a wide range of sectors who were seeking capital.

You need to create an end-to-end timetable, working backwards from when you would like to receive funds, while trying to avoid any key periods where you, or your potential investors, are likely to be distracted.

Think about the risks

Crowdfunding is a terrific way of raising capital but it’s not for everyone.

You have to be prepared to be open. When I started my last business and completed our seed round, I didn’t show our full business plan to anyone – just a three-page extract and then you got the plan if you signed an NDA - even my father-in-law (especially my father-in-law). If you’d said at that time that I would be putting our plans on the internet three years later, I’d have said you were mad.

But you have to let that go. You have to put your strategy, thoughts, and forecasts for the next few years in the public domain. It seems very counterintuitive, and of course you do not need to share absolutely everything, but you do need to be prepared to disclose and discuss plans in a public environment.

For us the risk, aside from the distraction, was embarrassment from a public failure to secure funds. This can of course be mitigated by proper planning and flawless execution, as well as securing commitments from ‘cornerstone’ investors ahead of launching publicly.

You need to consider carefully what the risks of traveling this route may be for your company and whether you can commit to managing the process while managing the business (shameless pitch time: if you need assistance in this regard, leading or co-managing campaigns are services I offer via marchartog.xyz)

Bring your pitch to life

Assuming you have decided it is for you, more so than with any other form of raise I have been involved with, planning is absolutely key to executing a successful crowdfunding campaign, because it is so ‘out there’.

Once you have weighed up and selected the platform you intend to host your campaign, you will have to build your pitch with very limited word counts asking about quite specific aspects of your business. Not all businesses will move beyond diligence and acceptance stages, so you need to make every word count. If you don’t have a 30 second ‘elevator pitch’ which describes your company and your ‘Why?’, this needs to be prepared before you do anything else. You should also ready yourself to justify every number in your plan and every claim on your pitch.

Your business plan needs to be beautifully designed and structured to succinctly tell your story, with a short executive summary upfront (as often this is the only bit that someone reads). If you do not have wordsmiths and designers who work for you already, it’s an investment well worth making.

You need to make a great video. Storyboard it and practice until it looks like you didn’t storyboard it. Don’t underestimate that it takes a really really long time to create a 3-4 minute video which tells your story and has the right pace to keep a viewer engaged...people are extraordinarily impatient. Get it properly filmed with good audio from someone who knows what they are doing, and I think that talking heads are important - as an investor myself I always want to see the whites of the eyes of the entrepreneur I am considering backing.

Engage your crowd

Don’t go equity crowdfunding without a crowd: If you’ve got a social media following, people will invest because they love the brand and are loyal to it. If you don’t, think about who might be in your ‘crowd’ to approach when the pitch is ready - remembering that when people buy shares in a football club it’s not necessarily because they think it’s going to make them a huge profit. If you do not have an obvious crowd, your crowd may be your own network, linkedin groups, customers, even suppliers.

Our company was used to marketing our products every month, and also helping our clients to market their products. These campaigns were among the most comprehensive and well executed marketing campaigns we ever undertook - don’t underestimate the importance of this - it does not necessarily hold true that, even with a great pitch, the platform crowd will fulfill your target - you need to bring your crowd to the party.

Create a sense of urgency

We used a countdown on our pre-launch page which rapidly counted down (in nano-seconds!) until the campaign went live, inviting people to pre-register for advance access ahead of the crowd. Then we reset it for just 48 hours during which the pitch was only open to pre-registered people. It was a huge relief and buzz when we hit our initial target at lunchtime the day after we launched - we tapped into people’s FOMO (Fear Of Missing Out) to encourage them to stake their claim early and we could do it again when it opened to the public as we were already overfunding and could say that we would likely close early.

Momentum, Momentum, Momentum

Momentum is absolutely crucial to a successful crowdfunding campaign. We used the pre-launch page on our website which gave people most of the information, and which we started pre-marketing around two weeks before we were due to go live. There was a form to register your interest and that was invaluable because it gave us a host of people who we could email as soon as the campaign went live.

Throughout the campaign you need to plan regular updates, many of which can appear timely but in reality be written or mostly written well in advance. Updates and momentum get you on the radar of the platform marketing folk and if you are working together then every piece of activity generating even a micro-investment helps to drive your pitch forwards.

You need to respond quickly to questions posed on the forums, and keep your crowd updated with progress. Also making yourself available for live or online opportunities for potential investors to engage with you adds to the real and perceived momentum of the campaign.

Final nuggets

Expect the same amount of work as a more traditional fundraising campaign, just squished into a much shorter timeframe - the best thing about the campaign for me (apart from having a few hundred grand at the end of it) - was the ability to control and influence the time-frame.

Hope for support from your team but be prepared to demand it from the cynics (and there will probably be some cynics). It’s really important for everyone to be fully engaged.

Set a realistic target - the sooner you are overfunding the sooner the wider crowd engages with you.

Set a valuation you would be happy for your best mate to buy in at - because they might. Mine did.

Post-raise, communicate with new investors - these may be your strongest advocates and represent free marketing. You may also find some potential advisors or Non-executives who can help you to put to use the new resources you have to grow your business and achieve your dreams.

Final piece of advice - strap yourself in, it will be a hell of a ride. So try to enjoy it!