In the second post of our Crowdfunding 101 blog series, Kieran Garvey of Crowdcube takes us on a whirlwind tour of equity crowdfunding, focusing on the key things you need to consider when deciding whether equity crowdfunding is right for your business.
2011 saw the birth of a new breed of financial services with the establishment of Crowdcube – the world’s first equity crowdfunding platform. In 2015, Beauhurst estimates that 50% of seed stage deals (~£50k-£1M) will be crowdfunded. For an industry that is just 5 years old, this is astounding.
Now, pretty much anyone can invest in innovative, fast-growing companies from as little as £10. Every week, a wide array of ventures, of all sectors and sizes, pitch their propositions to tens of thousands of investors hoping for a slice of the next big opportunity.
Equity crowdfunding differs from rewards and loan-based crowdfunding in that investors become shareholders in your company. They have a vested interest in the continued success of your business, hoping that several years down the line, you will provide them with a cash exit – many times their original investment. It’s high risk, high reward.
So how does it work? Firstly, you need to consider if equity crowdfunding is right for your business.
Here are some of the key things we are looking for:
- Clear, accessible and easy-to-understand description of exactly what your business does.
- Track record to date – proven sales/revenue? Engaged user base? Contracts? Awards?
- How much equity is on offer, for how much investment? How much flexibility is there here? Try to think of the minimum amount you need as well as your ideal/maximum target.
- Team – often the most important consideration for investors. Experience? Track record? Previous successes? Core team? Advisors/Board? Skills gap?
- Show me the money – what will you use the investment for? How much runway does this give you before you need to raise again? Any major debts we need to know about?
- Your network – crowdfunding is all about engaging everyone in your team’s professional and personal networks, as well as other private investors such as angels, VCs and corporate financiers. To whom and how will you market your investment opportunity? Social media?
- Your proposition – Is it unique? USPs? Market need? Competitors? Comparable successes?
- When do you need this investment? Remember it takes around 3-4 months from beginning to end. Do you have enough runway to last that long? The more time you have, the better.
A final critical point – make sure you have some investment from friends and family, customers or community, angels or VCs, before you go live. Treat crowdfunding as a blended funding strategy and round up your networks and private investors. Aim to have ~30% of your minimum target pre-committed before you turn to the platform. This initial momentum is critical to your success.
Ok, sounds doable? Great! Now get in touch with me via email@example.com so I can connect you to the Crowdcube team to arrange a call or meeting. Ideally we need you to have your business plan and financials ready so we can start working to prepare your pitch and gear up to launch.
Kieran Garvey, Partnerships at Crowdcube.
Header Image Source: Time.com