Five Things To Remember Before Equity Crowdfunding
1. The process can take longer than you think
Researching which crowdfunding platform to target and what they want to see from you, pulling together marketing materials, scripting and rehearsing your pitch video, networking with potential lead and professional investors. These are just a handful of the many hurdles you have to navigate as part of your crowdfunding campaign. The process of preparing for and undertaking a successful fundraise through an equity crowdfunding platform is time intensive and takes longer than most businesses and entrepreneurs would expect. You only get one shot at equity crowdfunding, so to not put in the time and preparation, no matter how long it takes, would be a mistake.
2. It is costly
With equity crowdfunding, there are a number of costs involved if you want to create the perfect pitch It is worthwhile paying to have a slick video created, bringing in designers to make your prospectus and one page marketing document visually engaging and networking business and investor events to engage investors ahead of the ‘go live date’ of your fundraising period. There are also costs to be paid with the platforms; most charge an arrangement fee and take a cut of money raised if you are successful. Many platforms also hide additional charges like transfer fees that also have to be paid.
3. You need to find your own investors
Some businesses and entrepreneurs believe that the platforms do all of the work for them, that the crowd will deliver. This isn’t usually the case. Lead investors make a big impact. For some platforms, a lead investor is required in order for a pitch to be featured. As a general rule you should expect to bring in 40% to 60% of the funding yourself and let the crowd fund the rest.
4. Very few crowd investors pledge more than £25,000
Some platforms boast more institutional investors or their own expert panel with more money to invest with, but most platforms have a crowd of small investors. You need to adjust your thinking accordingly – it isn’t about appealing to one investor with £250,000, it is about appealing to 20 or more with £12,500 or less. Be likable, have strong marketing materials, make sure it is clear what’s in it for them, do not expect them to fill in the gaps – engage the crowd, what is it that they want?
5. If your fundraising is successful you will need to keep your new shareholders regularly updated
Lots of small investors rather than a few large investors equals more shareholders to update on how you are doing. Some businesses have a communication structure in place that can deal with that, some do not. If your business is the latter, consider a platform with nominee shareholding services as they take on the administration of shareholders. However, note that when you do so the platform can also advocate for the shareholder.
Sacha Bright, CEO of Nextfin, said: “Although equity crowdfunding is a lengthy and arduous process, I recommend startups do embrace it. It is the building blocks of taking your business and turning it into a public company.
The basics of equity crowdfunding prepares you for the basics of becoming a listed company.”
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.
