In mid-2016, MBJ took the decision to seek external investment through crowdfunding in order to scale our new business model, WaaS – Website as a Service.
We set out to raise £350,000, and after analysing countless platforms, we decided that the most suited for MBJ, was Crowdcube. By the end of our 30-day campaign, we had raised a total in excess of £700,000.
Running a successful crowdfunding campaign can make your business into the success that you have always dreamed of. Equity-based crowdfunding is one of the best ways for early stage startups to source funding, and build networks of stakeholders and supporters.
However, an unsuccessful campaign can be disastrous. If unsuccessful, it can put off potential customers, partners, as well as future investors. If you want your raise to be successful, it is important to take it very seriously, and make sure that you have fully prepared.
This article should serve as a kind of checklist to help you to get ready for an equity-based crowdfunding round.
There are no right or wrong answers. You must think very carefully about what will suit your company best, your overall strategy, as well as how, and where will you find the right investors for your business’s needs.
How much time should you allocate?
Much of the hard work towards running a successful crowdfunding campaign is done long before your pitch goes live.
Think carefully about the amount of time that you will be able to dedicate to your campaign, whilst ensuring that your business continues to run smoothly. The last thing that you want is some bad press in the middle of a raise.
Whilst we only gave ourselves three weeks, depending on the amount of resources you can dedicate, we suggest that you allow yourself at least one month (preferably two or three) to adequately prepare for a successful raise.
Which kind of crowdfunding is best for your business?
• Donation based crowdfunding sees the public donating their money out of good will, and support for an idea.
• Reward based crowdfunding such as can be found on Kickstarter, is where companies offer certain non-financial rewards for investing, or are selling a product or service before it has been produced.
• Loan based crowdfunding sees investors repaid over time.
• Equity-based crowdfunding is basically like a mini-IPO – you are selling shares and ‘equity’ of your company. It is normally used for raises of £50k upwards. Investors receive returns on their investment when either part, or all, of the company is bought back (either internally or externally), or when the company goes public on a stock exchange.
These are very different concepts that require different preparations, and different strategies.
What kind of crowdfunding should you engage in?
Are you looking to increase sales, gain exposure, or find serious investors to invest sizeable sums into your company, or all of those? At what stage is your business? Are you looking for a few thousand pounds to get off the ground? Or have you been trading for several years and are looking for a boost of several hundred thousand pounds (or more) to take your business to the next level?
If you have been trading for at least one year, have a solid plan for growth and scalability, have a strong understanding of business fundamentals, as well as a clear exit strategy for selling all, or part, of the company down the line, then equity-based crowdfunding could be the best option for you.
Develop your pitch
This is one of the most crucial parts to any campaign. The way you sell yourself will strongly influence potential investors.
Most seasoned angel investors will tell you that they invest in teams, more than ideas or products. Of course you need a great idea, product or business model, but investors will be looking closely at whom they will be giving their money to.
What kind of investors are you looking to attract? How do you want them to perceive you? Are you looking for an experienced businessperson to come on-board and actively help you to grow your business and mentor you?
Put yourself in their shoes. Many angel investors do not want to be involved in the day-to-day running of the business; they just want to sit back and see a sizeable return on their investment.
What is your story? What makes you unique and stand out? How will the video of your pitch be structured? Make sure that you achieve the balance right between coming across as a serious businesswoman/man, as well as someone who is likable and investable. Don’t smile too much; yet don’t smile too little either.
Develop your strategy
Once you have chosen the best platform for your campaign, start analysing other pitches on it.
Make lists of, and follow the other pitches over time. Take note of their campaign strategies, and how successful they have/have not been. Do not just look at the very successful ones, closely examine pitches that ARE NOT successful. What did they do/are they doing wrong?
Are the campaigns using social media much? If so, which platforms are they using? What kinds of posts and updates are they making? Which ones have had the most success?
Have any of the pitches been featured in any press or media outlets? Which ones? Take note of where they have gotten exposure from, and who the journalists/bloggers are. Maybe they would also be interested in writing about you/your business.
Whilst you should take notes, and learn lessons from other pitches, it is important to develop a pitch, and a story that is unique to you. It must convey a strong message, and identify the path for financial returns to your potential investors.
Make lists of people, or organisations that could help you to get exposure for your campaign (journalists, bloggers, social media groups, interest groups etc.).
Make lists of upcoming events where you could go along and pitch, or just meet people and tell them about your campaign.
Make lists of different groups of investors. Where do they congregate (either online or in person)? Ensure that when you target different groups of potential investors that you take a targeted approach, and that your communications are tailored to that particular person, or group.
Basically, make all different kinds of lists, and keep them safe.
Prepare a date in the middle of your campaign, to hold an investor Q&A session. This will give the opportunity to potential investors to meet you face-to-face. Make sure that there are no other big events going on that day that could attract your target audience away from your event.
Building personal relations brings a face to your business. Individuals are much more likely to invest if they have had personal interactions, or connections with the business.
You should also research, and read all relevant legislation regarding the sale and promotion of financial investments. Make sure that you are not crossing any boundaries.
What should you do to ensure that your business is ready for all the exposure that you are about to get?
Get your finances in shape (or as in shape as they can be!). But do not, ever, lie or sell a false reality.
Write a comprehensive list (yes, another list!) of Frequently Asked Questions (FAQs). Make sure that you, and everyone in your business knows what the opportunity is for potential investors, and that you are adequately prepared to answer tough questions.
Get your website looking great. Investors will naturally have a thorough look at your online presence before investing, and this may well be the deciding factor. Reach out to MBJ if it is not. Building great websites, and helping to create a great online presence is what we do best!
A business that is asking people to invest into it, but cannot be bothered to ensure that its online presence is looking perfect, cannot expect to be taken seriously by investors.
Once the campaign is live
Now the hard work really begins. You will need to work tirelessly towards communicating to the world that your pitch is live, and that there is an opportunity of possible financial returns for investors.
Attend as many of the events that you have listed as possible.
Prepare social media content for updates along the way such as milestones, updates, and general news. Consider Facebook, LinkedIn and other social media ad campaigns, which target your ideal investor profiles.
Make sure to monitor and reply to comments and discussion boards on your profile. This gives you the opportunity to offer personalised responses and explanations as to the current status of your business, and why things are the way they are. Your pre-prepared FAQs should help you to quickly respond to any tough questions.
Write emails to your new investors and show them how much you appreciate their commitment. Think about incentives for your new support network. Most seasoned angel investors have extensive networks that you can try to tap into.
Have contingency plans in case things do not go as well as you hoped they would.
You should now have more of an idea of what, and how, to begin to prepare for an equity-based crowdfunding round. If you follow these steps and guidelines, you should be well on your way to developing a successful pitch, raising those funds, and hitting your target.
If you have any questions and would like to reach out to MBJ, we are happy to share our experiences that we gained during our raise.
It was by no means easy, we had highs, and we had lows. It took many long weeks of hard work from a team of highly motivated and dedicated individuals working together.
In the end for us, the rewards far surpassed our best hopes and expectations. Following our raise, we found ourselves in a position to begin scaling our business, and working towards bringing returns for our investors.
Was it all worth it? Definitely.