By Scott Haughton, COO, Envestors.
Crowdfunding has transformed the fundraising process and is solidly embedded in our lexicon; however, it’s hardly a new concept. In 1793, Mozart, lacking the cash to perform three new concertos in Vienna, appealed for funds and was rewarded by a ‘crowd’ of 176, each of whom received a copy of the concerto manuscripts as their prize. In 1997, the rock band Marillion – short of money to put on a planned US tour – successfully raised £39,000 via a pioneering funding site, using their fans as their ‘crowd’. Jump to today and there are over 200 sites in the US; the UK isn’t far behind with 65. The number of sites is a reflection of the number of cash-hungry entrepreneurs, but a volume of options is no reassurance – when it comes to capital – and competition is high. Here are our tips to help you navigate your way to success.
1 Decide if crowdfunding is right for your business
Raising finance is challenging and there is no one-size-fits-all solution. It’s important to look at which fundraising strategy is best for your business – is crowdfunding even right for you, would business angels be a better idea or even a combination of the two? Not all projects appeal to every crowd, so research whether a particular platform suits your niche and if you’re comfortable with being ‘one of many’. If you already have your own crowd, do you want to share them? If you don’t want to dilute your chances of raising capital, choose a platform like Envestry for Scale-ups, which enables you to fundraise through a personalised, FCA regulated site – and keep that crowd to yourself.
2 Fasten your financials
In times of uncertainty – Brexit, for example – it’s crucial to get your valuation right, as conservative numbers will always be more appealing, even to those who pledge small amounts. The advice counts for your forecasts – these must be clear and realistic. Consider your deal as a whole: the structure, option pool, share price and whether you’re offering equity, rewards, debt or loans. If you’re EIS eligible, advertise it – this is a great tax relief scheme, specifically designed to encourage investing and it’s worth shouting about. Finally, you must be totally clear on how much you’re raising and why: people want to know what their money will be spent on and you’ll need to have that answer in black and white.
3 Master your marketing plan
In order to get people to engage with your brand and invest in you, they’ll need to know you exist, so it’s essential to get your marketing strategy right. Crowdfunding is all about capturing the personal ethos of the campaign – the connection between your vision and their emotions. You should consider the amount you’re raising, your brand values and the relationship you have with your customers. Study your product carefully and write down exactly which audience to target: don’t make assumptions, research and gather real data before you start marketing. For example, do you want to have a publicity campaign to encourage your customers to become part of your brand – the Brewdog Punks, for example – or would a reward-based approach be better?
4 Get asset ready
You’ve decided on the strategy, now you need the tools to deliver it. Your pitch deck, forecasts, investment notes and business plan should all be complete before you begin. video explaining the investment opportunity is another essential – campaigns with a video statistically raise 105% more than those without.
5 Pump up your network
Momentum is vital for motivating crowd investors. Most are likely to stay on the sidelines until they see that others have anted up – in fact, people are 22% more likely to invest once you’ve raised over 40% of your goal. Before you launch, classify who you think is most likely to invest such as family, friends, colleagues, customers and suppliers. Target them well before you launch to gain that all-important traction – early momentum will create intrigue and a fear of missing out; everybody loves to be part of a success story.
6 Fundraising team are go!
A dedicated fundraising team – as opposed to the entrepreneur who goes it alone – with a specific strategy typically raises 38% more than those who go it alone. It’s a relentless process – say goodbye to your weekends – so the more hands on deck, the better. There will undoubtedly be hurdles, so prepare yourself emotionally if it doesn’t progress as you’d hoped. All crowdfunding sites have dedicated experts and Q&A sections; if you’re worried, get in touch. And don’t forget: if you’re looking for cash to scale, make sure that you still give your business the attention it needs. You don’t want to raise the capital and then have your company fail through neglect.
7 Drive awareness, constantly
This is the backbone of any fundraising strategy and one email won’t cut it. Target your audience and use every option available, as the stats are self-explanatory: personalised emails have a 53% conversion rate, Facebook and Twitter 12% and 3% respectively. Quality content that explains who, what and why – blogs, updates, progress reports, news etc – should be posted throughout the campaign; keeping your community active and engaged with daily communications triples your likelihood of success. Other ideas include a catchy hashtag, testimonials, a striking banner or just a quirky, unique promotion – anything to help people understand the quality of your product, brand and why they should be a part of it.
8 Be patient
Fundraising is a marathon, not a sprint. Traditional crowdfunding sites set their rounds at an average 30 – 60 days, though trends indicate that personalised, owned platforms – such as Envestry for Scale-ups – will soon become the norm, allowing the entrepreneur to choose – and extend, if required – the length of the campaign, leaving it ‘always on’. It takes time to find and engage a crowd – you may have to repeat the process if you don’t succeed first time round, so patience is vital.
9 Love your investors
Maintaining good investor relations is essential – just because you’ve got the funds it doesn’t mean you can forget your crowd. They’re not an ATM, they’re your cheerleaders and the lifeblood of your business. Honest, consistent updates on all news (good or bad) and a steady line of communication has myriad benefits: free publicity, advice, support and ultimately boosts your reputation. When you’re looking for further funding – either from current or potential investors – down the line, your odds of success will be innumerably greater if you kept your shareholders warm all along.
About the Author
Scott Haughton is COO of Envestors. Envestors is a fintech company that connects investors and scale-up companies. With their fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year. They’ve raised £100m+ for over 200 companies through their own private investor network. Founded in 2004, Envestors is regulated by the FCA and has offices in the UK, the Channel Islands, the UAE and strategic partners across China. www.envestors.co.uk