What could be more beneficial to a small business owner looking to raise finance through crowdfunding than a guide put together by an experienced crowdfunder?
Well here we have it ‘A Crowdfunding Guide from a Crowdfunder’. Togethera has provided AltFi Funding with a text format of their recently published crowdfunding playbook.
The post below was written after raising £230,000 for Togethera, the private sharing app for your family and loved ones, on Crowdcube in the UK. It’s specific to equity crowdfunding, i.e. selling shares in your company, as opposed to raising money from a group of supporters for your project on Kickstarter or Indiegogo. Although we were successful in our campaign, the playbook here doesn’t exactly reflect what did. Instead, it’s a guide on how we would prepare and run our campaign after all the lessons we learned along the way. Many of these lessons were generously shared by Anthony Eskinazi and Doug Monro, founders of JustPark and Adzuna, who were a lot more successful in their crowdfunding campaigns, having raised £3.5M and £2.2M respectively.
Before we dive in, two important points on equity crowdfunding:
• Companies like Crowdcube and Seedrs are tools that help you raise money from a wider pool of investors than you’d normally be able to. Their primary role is to remove friction and safeguard the fundraising process. They also connect you to a wide community of investors, but that’s secondary. In other words, you’re the one that needs to bring investment to the table – just like normal fund raising.
• Momentum and validation are the keys to getting you funded. Conversion from prospective to committed investor changes dramatically after you’ve hit your funding target. It’s critical that you hit that target as early in your campaign as possible, ideally days after going live to the public (if not hours).
Keeping both of these in mind, let’s dive into the process.
1. Decide if crowdfunding is right for you
• Do you have a network of investors you can count on?
• Do you have access to a further network of potential investors - professional or otherwise (i.e. family and friends)?
• Can you generate PR/buzz/traction around your pitch?
•Do you have a large number of users who already use your product?
• Do you have a product/business that people can immediately understand?
•Is your business just starting or if it’s already in motion, are you showing excellent traction?
If you answered ‘No’ to more than one of the above, then you’re not ready to crowdfund.
2. Set the amount you’re raising
This is the most critical decision you’ll make. Set the amount too high and you run the risk of not making it. Too low and you don’t look credible. The figure you’ll end up with is an optimisation of two factors: the amount you need (top down) and an amount you can be almost certain to raise (bottom up).
Let’s start from the latter:
• If you’ve already raised money, go back to your original investors and ask them if they’re prepared to participate in this round and with how much.
• Get the team together and poll your immediate network of friends, family and close business contacts. Create a survey where they can indicate interest and amount to invest.
• Do the same with your most active users or customers.
• Add up the amounts, applying a heavy (at least 50%) discount to the figure you got from non-professional investors.
• Let’s call the above figure MITB (“money in the bag”), but don’t let that mislead you – you need that money to be invested the moment your round goes live (and ideally before), but you’ll find it needs a lot of chasing. My recommendation is that your crowdfunding target is 2xMITB. Hopefully this aligns with the funding you need. If it doesn’t, make sure you get more commitments before finalising your pitch.
3. Work on your pitch. You’ll need to provide the following:
• Overview of the market
• Your plans and goals for the fundraising
• A business plan, which can be a high level presentation
• Financial projections on your balance sheet and P&L, which are driven by a detailed business model
• Team CVs
• Legal due diligence items (articles, previous articles of association, cap table etc)
• While you’re working on these, go over other pitches on the platform, request their business plans (everyone does it) and speak to a few entrepreneurs who have both succeeded and failed in a crowdfunding campaign.
4. Create your video
This section deserves its own post, but here are the top tips:
• Get a shortlist of recommended agencies and freelancers who have done crowdfunding videos before.
• Make sure you meet them and the editor who will be producing your video. If the editor is part of the team that shoots the video it will make post-production a lot easier.
• Write a detailed script. Don’t go with bullet points you can talk around – be specific.
• Over-prepare and plan in as much detail as you can (who’s in the video, where you’re shooting, what graphics you need, key messages, rehearse product demos, rehearse your delivery). Don’t rush into shooting, because you will waste time and money.
5. Prepare your marketing plan
• Export your list of contacts from Gmail and LinkedIn and get other members of your team to do the same. Create a thoughtful email strategy for the duration of the fund raise. You may also want to complement that with targeted Facebook and Twitter advertising. You need to shout as much as possible about your campaign and get your network to help you amplify awareness
• Create a content plan for the duration of your campaign. You’ll need to show an active pitch with on-going conversations and a vibrant social media presence
• If you can, align important product launches, partnerships or any other big milestone to fall within your campaign and make sure you create PR around them
6. Reach out to more investors.
Ask everyone who’s coming in the round to recommend others, get introductions to new angels and funds. Create as big a pipeline as you can and push for early commitments.
7. Get the team ready.
You need at least one person who’ll be almost exclusively focused on fundraising, but ideally you’ll need support from more members of the team to handle content creation, handling of incoming business plan requests, forum conversations and email campaigns.
8. Agree legals with the platform you’re raising and your existing investors.
Appoint your lawyer and get ready for the changes you’ll need to make to your articles and potentially your existing investment agreement.
Once your pitch is approved and video is done, you can activate your pitch, but keep it in private mode. You can now start receiving investment pledges, without opening up the round to the general public. This is when things start getting interesting.
9. Start getting investments on your pitch.
Now you have to drive all the people who have previously told you they want to invest to do so urgently. Let them know in advance you’ll be enabling your pitch in private mode and give them a few days to get their investment in. This is where you make or break your campaign.
Have you reached 50% of your target? If yes, awesome – proceed to the next step! Otherwise, keep engaging with investors until you’ve reached that milestone.
Things get very exciting now!
10. Open the round to the public. You want to make as much noise as possible at this point. Activate your email and marketing campaigns, hit all the channels you’ve lined up and create buzz around your pitch. For the next 6 weeks this is your exclusive focus and you’ll pour all your energy into blasting through your target asap and get to overfunding. During this period:
• Execute your marketing plan on and off your pitch page.
• Meet investors continuously. Front-load this activity – you want them to commit early.
• Network actively. Go to that networking dinner invite you received, the awards ceremony, the party you would have probably skipped. Every person you meet now is a prospective investor, so always be pitching.
Have you hit target? Fantastic! Well done – you are now in overfunding mode. Now things become a lot easier. You’ll start seeing people who you’d spoken to weeks ago, suddenly deciding to invest. Investors from the platform are starting to come in with much higher amounts and everything feels easier. It’s human nature. We’re all a lot more likely to back something that’s been validated by others and validation in this case is strongest when you’ve hit your target. This is not no time to relax though. This is where crowdfunding really proves its value as you raise from investors who you could not have reached otherwise. Keep executing the plan, creating buzz and getting in as much money in as possible. Don’t forget to take time off to celebrate with the team when your campaign ends.
11.This stage is similar to traditional fundraising. You cannot relax until all the documents have been signed; money is in the bank and forms submitted to Companies House. In this case though, you will hopefully have a much larger number of investors as advocates for your business. Make the most of it, by engaging them early and harness their enthusiasm for the business they just backed.
So how did we do?
We did exceed our target by 15% and raised £230,000 from 180 amazing investors. In terms of timing, it took us four and a half months from first meeting with Crowdcube to ending our campaign and then weeks to get all the money in and close. We’ll soon be sharing a detailed analysis on the round performance and breakdown of investment, so keep an eye out for our next post.
Would I recommend Crowdfunding? Absolutely! It’s become a vital financing tool for any start-up; it’s unlocking huge amounts of capital and it lets you share the company’s success (and risk) with your closest supporters. However, it’s hard work just like traditional fundraising and it demands careful planning and execution. I hope that this post will help you navigate the process. If you have comments, questions or want to go through any of the above in more detail, leave a comment below or drop me an email or reach out on Twitter.