Beginners Guide to Crowdfunding

By Jason Hulott | Crowdfunding

There used to be clear paths to follow when raising business capital. You could speak to the bank manager, or if you needed more, you could try to get on the calendar of a Venture Capitalist. Either way, you’d present your idea, show your business plan, perhaps even show a product, and they would decide. Sole investors mean a strong influence over your business or a loan hanging over your head.

What is Crowdfunding?

When you crowdfund, you make your pitch to the users of an entire platform. In some ways, it represents the gamification of capital raising; specific levels of contribution attract perks or rewards over and above the focus of the campaign. Each campaign will have a financial goal and a definite time limit. One month is common, though focused campaigns have run for as little as a week, and there are mechanisms to allow contributions after the fact in some circumstances.

There are many crowdfunding platforms, with specialities from board games to property. The “crowd” is the user base of your chosen platform. You take it upon yourself to produce the best, most engaging pitch possible because while you’re appealing to many small contributors, you’re doing it in a very crowded field. You need to get noticed.

Equity and non-Equity crowdfunding

When you set out to raise funds, you decide if you will campaign for “Equity” crowdfunding or “non-Equity”. The former raises capital via selling a stake in the business and the latter deals with individual projects, in return for privileged access.

Non-Equity crowdfunding

This is the model most familiar to the public, used by platforms like Kickstarter and Indiegogo. Creators have embraced these platforms; many of the projects listed are for board games, comics and even films.

Pitches offer rewards for different levels of contribution, ranging from a simple “thanks” to discounted purchasing options or exclusive extras.

Non-Equity crowdfunding is not shopping, though it has a superficial similarity. The product being pitched might be complete and looking for production funding or exist solely as a photoshopped image. You have no legal protection and are reliant on the integrity of the creator. If they take your money and run, or do not deliver, there’s no recourse outside the platform’s own T&C.

When you buy into a project, you are only doing so on a one-off basis. You have no stake in the creator after they have completed their project. Creators often target those who have contributed to successful projects when running new campaigns, but again, these will be self-contained. These projects can work as promotional tools to establish your credibility and reputation before moving to a full general funding bid.

Equity crowdfunding works differently.

Equity crowdfunding

Investors in Equity crowdfunding are buying into a stake in the business’s future. Usually, this takes the form of shares, but there are also peer-to-peer lenders in this category where investors fund loans.

READ  Equity Crowdfunding Masterclass

Your investors become your brand ambassadors with a direct interest in the success of your business. Crowdfunding is a social form of fundraising, so the opportunity exists to create a community of engaged investors who are active online.

Shares

The company raising funds can offer shares directly, or the platform can act as a Nominee which appears on the register of shareholders. Acting as a Nominee means that the platform will handle the distribution of any profits to shareholders.

A company can issue shares as Nominee, Direct, or a mixture based on investment criteria. Setting a minimum investment threshold for Direct shareholders means that the company can collect all its small investors into one entry in its register of investors. This simplifies their admin.

Most of the UK Equity crowdfunding market lies with Crowdcube and Seedrs; these platforms have each facilitated investments topping £600 million. They are similar but offer different investment models and fee structures.

Crowdcube

  • Crowdcube offers Ordinary shares with a minimum investment of £10.
  • No investor can back a pitch more than twice to avoid manipulating their front-page promotion.
  • Fees are 1.5% of the investment, added to the payment when the campaign closes (minimum 50p).

Seedrs

  • Seedrs offers Ordinary shares across three models, minimum investment £10.
  • Equity: the most common model allowing investors to become shareholders.
  • Convertible: Make an early investment in return for buying discounted shares later.
  • Funds: Spread one investment across multiple companies (minimum £100).
  • Fees are 7.5% of any profits.

Promoting equity crowdfunding

You’ve decided on crowdfunding, picked a platform and set a start date. How do you promote your campaign to get funded, or even over-funded?

Lay the groundwork

Both Crowdcube and Seedrs have handled hundreds of successful campaigns; don’t reinvent the wheel. Before you design your pitch, spend some time with both their testimonials and the campaigns of successful raises. You want to stand out from the masses but look at what works. Get your paperwork and documents in order well ahead of time and check your pitch for both accuracy and legality. The platform will do due diligence to ensure compliance, but your launch will be smoother if you get it right up front.

Build your narrative

Crowdfunding isn’t just this weird, nerdy method of fundraising any more. The average person on the street has heard of “Kickstarting”, even if they don’t know the details, and journalists definitely know about it. You need to be interesting; investors will give their money to YOU at least as much as to your company. Build trust into your pitch by letting investors get to know the people behind the bid, for example;

  • Who are you? ;
  • What did you do before this? Did you start at the kitchen table with family answering the ‘phones? Or write an app filling a need for impoverished students?;
  • Have you run any successful non-Equity campaigns?;
  • Have you overcome obstacles, and if so, how?.
READ  Equity Crowdfunding Masterclass

How you got here is as much a part of your pitch as the facts and figures. Be someone a journalist wants to write about.

Get the big pieces in place

Finding investors willing to hand over a significant percentage of your funding goal can raise both your profile and your credibility with smaller investors. Where can you look?

  • Friends and family; these people know and trust you already. If they can’t help, they can spread the word:
  • Dig into your network; look at LinkedIn for connections to Venture Capitalists or interested parties:
  • Networking events; polish your elevator pitch to get meetings with people amenable to investing in you then prove your utter sincerity and seriousness about your business.

Use what you have

Your customers are a natural early target for your raise; get links to your pitch where they can find it. Being in business already, you have resources that can be repurposed to promote your bid.

  • Banners on your website can link straight to your pitch page:
  • Blog about what you’re doing and explain how this kind of crowdfunding works:
  • If you are a “bricks and mortar” business, get your staff in t-shirts promoting the pitch:
  • Include cards with the pitch URL and QR codes in every sale you make:
  • If you’ve run a funded non-Equity campaign, reach out to those backers:
  • If you have a mailing list, include your pitch page, along with a “the value of your investment can go down” warning in every email.

Both Crowdcube and Seedrs have analytical tools that let you track where traffic is coming from; use them and improve the efficiency of your efforts.

Meet and greet

Don’t underestimate face-to-face conversations. An event where you pitch straight to invited guests can create a pool of advocates who will spread the word about you. Make sure you pick the right venue and, crucially, make sure it’s somewhere you can be heard, both speaking to the group and mingling afterwards. It’s not appropriate for every model, but it can help put a face to the numbers behind the proposal.

Social media is your friend

It’s tough to beat social media for engaging with potential investors. You can post regular updates, answer questions, and encourage your followers to share your posts. Highly shareable content includes infographics and short-form videos. Always include your pitch URL in your posting.

Focus on quality over quantity; your followers can get swamped if you’re regularly posting about your campaign and it shouldn’t be ALL you post about. Schedule posts that encourage sharing and engagement and respond to the results.

Stick to your schedule

  • Set landmarks within the campaign to examine your status and adjust your strategy towards what is working best.
  • Keep your potential and committed investors up to date with developments and encourage them to get involved or increase their investment before the window of opportunity closes.

After the fact

Investors have a fortnight cooling-off period under UK regulations before your funds are collected. In that time don’t take their continued involvement for granted. Make sure they know what’s going on and thank them for their participation. If you make them feel appreciated that’s a pool of goodwill you can make use of if you want to raise in the future.

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About the Author

Jason Hulott is Business Development Director at Digital Marketing Specialists, Speedie Consultants. He is Google Partner certified. His role is to identify and implement traffic generating and revenue increasing ideas for our client base.