Monday, 3 August 2015

7 Tips on raising equity crowdfunding

As part of our new advice service, here are some pointers on how to be successful when raising money from the Crowd.

1. Have either proof of concept or some serious sales data and real market research ready or be prepared to sell a large percentage of your business. Despite what the platforms tell you, this is a very high risk investment and you need to offer comparable returns. You are offering a chance not a certainty, so dont value your company on the 'fact' that your 3 year sales projections show EBITAD and multiply this by the sector's standard. The value is todays with an uplift for future prospects.

2. Be honest - do not start comparing your start up niche food business with Dorset Cereals  or your low tech subscription model with Graze etc. It just makes you look silly and will caste doubt on the credibility of your plans. Generic statements about your market size, copied from a Mintel report, are worthless. Get some real customer feedback.

3. Essential to get a large group of supporters before you launch. All the data shows that the first few weeks of a campaign are crucial. Research shows if you can get over the 33% funded mark early on, the momentum will more often than not, see you over the line. Use SM to generate a buzz. Get the pitch out there big time. Offer evening talks/meet the founders in easily accessed places. Create a highly convincing presentation. Remember investors have a week to withdraw their investment at the end of the time period, so make sure they know this. If you have over funded and with withdrawls accounted for, you are still over your original sum, then you can complete.

4.Use your greatest asset, your customers, to invest that vital first third by offering them generous product discounts or freebies. Like rewards based CF, you can use the pitch to 'sell' product to promote your business.

5. Dont be fooled by the platforms into playing games with the Crowd - they know about these now. If you are raising a total of £500k and £300k has already been arranged outside of the platform (cf Mara Seaweed currently), DO NOT make it look like you are raising £500k on the platform and hey presto you're off to flying start with a £300k funder. It may well prevent what was a perfectly investible plan being unsuccessful.

6. Do have a good deal of skin in the game. The Crowd hates founders who ask them to risk money when they themselves are not. Bank loans etc do not count - you must have equity in your own business. If you are not confident enough why would anyone else be.

7. Be sensible with your valuation and financials. Platforms have seen both escalating out of control since 2011. If your sales jump from £100k to £800k in 12 months you need to show how this will happen. Have you enough cash to make it happen, what is your stock turn like, how will your systems cope with this increase etc etc. Similarly if you show your GPM increasing substantially be sure you can show why - bland statements about economies of scale will not work . Dont use your business plan to enthuse about your multi billion pound market. Use it to show how you will get from A to B and then C in real terms and what you have prepared should you be delayed. Most start ups over trade and run out of cash. Dont be one of them.

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