Equity Crowdfunding? Here's A Short Guide To What You Need
Equity crowdfunding for businesses has burst onto the scene in recent years and has helped to fund successful enterprises such as Brewdog and Oculus. It can be an elongated process and will require more time than a standard business loan, but in this guide we share the most important information you’ll need if you are considering equity crowdfunding.
Create a plan
Before you start your campaign, you need a clear plan that addresses the following questions;
- What are you going to achieve?
- How are you going to achieve it?
- Who is going to achieve it?
All of these questions need to be addressed in a well-structured business plan. Investors and equity crowdfunding platforms can be turned off by lengthy documents but for crowdfunding platforms they are required. Nevertheless, it is worth thinking about how you can present your ideas in a short and snappy manner within the slidedeck that refers to the business plan. Think about what you are writing and summarise in the most efficient, but informative way. Remember, you need to include your vision and mission, details of your product and the service you are offering and why this differs from what is already available on the market.
A slidedeck should include the following;
- Introduction, Vision and Mission
- What is the product/service?
- The problem you are solving
- The solution you are providing
- The competition (SWOT Analysis)
- The Unique Selling Point (USP)
- The marketplace
- How you are going to sell it, who to and for what price
- The management team
- What is the money for
- The Financials
- What are the benefits to the investor
Making sure you are clear in your idea
One of the most important things is to be clear. If your business is confusing or your plans are confusing, you are going to lose interest. You need to ensure that your primary business function is understandable and that what you’re looking for and how you plan to reach the business goals are clear and mapped out. When it comes to your exit plan you should be straightforward and clear. Remember, the word investors, you are not just selling your business, you are selling an investment. How are investors going to see a return? Most importantly, have fun with it, it’s an exciting opportunity for your business and it’s certainly one of the most fun ways to raise finance.
How much equity will you offer?
This is perhaps the most difficult part of the process. You need to consider how much of your business you are willing to give away. As well as this, if you are planning on multiple funding rounds, you need to save some equity for the future.
As part of this process, you will need to get a valuation. If you are going to offer 25% of your business for £250,000 then you have valued your business at £1m, for example. Ask yourself, is that a reasonable and justified sum? You can’t just pick any value you wish to raise and only offer a small percentage of equity. Valuing your business will play a huge part in what you can look to raise. Remember, figures have to be justified. When valuing your business, you need to consider the value of assets, the cash currently in the business, discounted cash flow for future projections, valuations within the industry, the revenue and projected sales as well as the value in existing staff. You need to be realistic, valuing yourself too high will make investors less likely to invest as they will be expecting a higher share for their cash. But also be comfortable with the amount of equity you are giving away.
Generating excitement in your idea
It's time to get people buzzing about your business idea. Potential investors need to be as excited as you, after all, you are trying to get them to invest in your business. The best place to start is by creating a video to highlight your strengths as a business. Like your business plan, make it short and engaging. Get yourself online and on social media. Showcase your work across Twitter, Facebook and Instagram and engage with your customers and potential users. It’s a great, free marketing tool to get your business known and visible, and with the option for a paid ad service you can increase your marketing even more. Create a build leading up to your funding round; create some noise around it and why it’s so exciting and exclusive.
Choosing the platform
The equity crowdfunding market has grown at such a huge rate and there are now a number of great platforms to choose from. When it comes to picking a platform to raise with, look at what suits you the best. By this I mean look at the charges, what percentage the platform will charge from your raise and do they also take a share in your business. Do your research, consider the types of businesses they have previously funded and what type of investors they are likely to have. Try and find a platform that suits your needs and also is likely to be the most relevant for your business.
Author: Sacha Bright & Oliver Murphy
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.
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