Equity crowdfunding, which started as an ‘alternative’ source of funding
for start-ups just a few short years ago, is now the biggest source of venture
finance in the UK, with 21% of deals funded this way in 2016*, with deal sizes
ranging from £50,000 to £1,500,000 and beyond.
For entrepreneurs, equity crowdfunding can not only be a fast and effective route to investment finance, but also a great way to give customers, partners and associates an opportunity to be part of your company, becoming your greatest brand ambassadors as you build your business. Exposure on an equity crowdfunding platform, such as Seedrs and Crowdcube, also gets your brand in front of hundreds and thousands of potential customers, and raises your profile in the investment eco-system, which is excellent for building investor relations for future fundraising rounds.
Crowdfunding is also democratising access to venture finance for women led businesses – you’ll find far more female investors on the crowdfunding platforms than anywhere else, and around 22% of funding goes to female-led businesses on crowdfunding (compared to 5% of venture funding overall).
However, despite the crowdfunding platforms getting tougher with their selection criteria, turning away over 90% of entrepreneurs that apply to be listed, the success rate of campaigns is still only around 60%. That means that 40% of campaigns FAIL.
FAILURE has serious consequences. Of course, the biggest one is that you don’t get ANY funding. Even if you’ve reached 80% of your target, unless you hit your fundraising goal, you walk away with NOTHING. That can be catastrophic for many small business. The damage to your brand, your pride, and your confidence are also not insignificant side-effects.
So why do crowdfunding campaigns fail?
There are 6 critical reasons
1) A sub-standard offer
Your offer to investors must be beyond compelling, with an idea that truly resonates with investors, offering exciting returns in a market that provides great potential to scale. You need to be proving strong traction with good progression on your KPIs, and have an outstanding team who investors can trust deliver. Your valuation and equity on offer need to make sense. If any of these things are out of kilter, you will struggle to raise money.
2) A pitch that lacks lustre
Your pitch presentation has got to be stellar; anything less than this is doomed to failure. A crowdfunding video that’s too long, fails to grab interest within seconds, lacking key information, or poorly produced will lead an investor to ‘swipe left’. Equally, a poorly put together pitch deck and financial forecasts that aren’t professionally produced will give off all the wrong signs to potential backers.
3) Lack of momentum
If you launch your public crowdfunding campaign with less than 1/3 of your target committed, you are quite frankly going to struggle. Getting momentum in advance of your launch, whether that’s from your network of smaller backers like your customers and business associates, or from a major cornerstone investor like a known professional angel investor or VC, is critical. Momentum gives your campaign validation. It shows the crowd that others are backing you, and believe in you. Without this, the crowd just won’t have confidence in your business. It’s the phycology of the crowd, and although no investor will admit to being influenced by that, it’s the absolute reality.
4) A poorly run campaign
You have 30-60 days to raise finance on a crowdfunding platform, so if you don’t plan your campaign like a military operation it is very easy to miss the mark. Get your target wrong? Fail. Badly designed rewards scheme? Fail. Don’t understand your audience and how to communicate with them on which marketing channels? Fail. Crowdfunding is never as simple as ‘build it, and they will come’. You have to hussle, hussle, hussle.
5) Not working the platform
If you don’t work the platform itself, then your chanes of failure are also high. It’s critical to understand how to maximise your exposure on the site, get promoted through investor emails and social media adverts, and get the most out of your platform partnership. How to manage investor Q&A effectively, and get your deal over the line. It’s simple, but that doesn’t mean it’s easy.
6) Going it alone
If you’ve never raised finance before, or run a crowdfunding campaign before, the chances of you making big mistakes along the way are very high. It’s an art and a science that takes a lot of planning and hard work. The crowdfunding platforms can only help you so much, but they simply don’t have the resource to hold your hand throughout the whole process. If you don’t get professional support to help you with the strategy, planning and implementation of your campaign, it will suck the life out of you. You’ll take your eye off your day-to-day operations in the meantime, and not only will you screw up your fundraising campaign but you’ll screw your business up in the process.
If you want to talk through your challenges and concerns about raising finance for your business, and whether crowdfunding is right for you, then just book a call with me and I’ll be happy to help.
* Source: Beauhurst
A new report shows that male-led startups are 86% more likely to secure equity investment than their female-led peers, DESPITE the fact that they're also considerably more likely to fail.
You’d think by now these findings would have meant an adjustment in the market – i.e. more funding going to women. But sadly, that’s not the case.
Here’s the data, which was produced by Beauhurst for the Female Founders Forum:
What the £$%* is going on?!
The thing is, female-led businesses are LESS likely to fail, with only 23% of business folding vs 34% of male-led businesses.
This is a real bug bear of mine.
But ABOVE ALL, I believe that female entrepreneurs need more MENTORING and COACHING, to help them overcome all these challenges. Because it’s bloody hard.
Female entrepreneurs need to push themselves forward… because the reality is, they are more likely to succeed than the guys. Plus, they can then inspire the next generation.
One of my big personal missions is to help more female entrepreneurs on their funding journey. Giving women the tools, skills, support and encouragement to put themselves forward, and secure the investment they need.
If you’re a female entrepreneur, or you know one, then please get in touch and let’s talk about how I can help.
Full report can be accessed here http://tenentrepreneurs.org/research/untapped-unicorns/
If you’re in the first few years of running your start-up, you’re probably thinking about how to finance the growth of your company. Equity Finance is something you may be considering. But is it right for you?
WHAT IS EQUITY FINANCE?
Equity Finance is where you sell shares in your company in return for a cash investment. This investment usually comes from angel investors / high net worth individuals (HNWIs), venture capital firms (VCs), corporate venturing arms, or via private equity firms (PE). Equity Crowdfunding platforms are also increasingly used to bring together these type of investors on a deal.
WHEN MIGHT EQUITY FINANCE BE THE RIGHT FUNDING CHOICE FOR YOU?
1. When you’ve got traction - Equity Finance is best suited for those businesses that are already proving traction in their market and are ready to scale, which is the point at which seed venture investors are most likely to be interested in backing you.
hen you want senior level support - Typically, those people who invest will have voting rights, so you need to be comfortable with knowing that you’re giving up some control when you take on investors (although how much can be negotiated). The benefit of bringing on the right investors means that there are others who are sharing your risk, and others who also have a vested interest in helping you grow the company. If you bring on investors with valuable skills and experience, this can be very helpful.
WHEN MIGHT EQUITY FINANCE BE THE WRONG FUNDING FOR YOU TO SEEK?1. If you’re still at idea stage, or in early development – at this very early point in your business journey, you’ve not yet validated the market. This makes the venture much riskier and therefore more challenging to secure investment for.
WHAT ARE THE OTHER OPTIONS ON FINANCE YOU MIGHT CONSIDER?1. Boot-strapping – at the beginning of your business growth journey, you should back yourself as far as possible, and beg, borrow and steal (not that I'm actually recommending theft!) the cash you need to get you out of the blocks. Look to your savings, credit cards and Friends, Family and Fools (FFF) to help you on your way.
In conclusion, for businesses with good signs of traction, strong potential for growth, and ambitions for exit over the next 5-10 years, then equity finance can be an excellent way to unlock significant amounts of funding for entrepreneurs. If you're not at this point yet, then there are other options to pursue to get you on your way.
If you’re ready for equity investment, and you'd like to talk about how you might raise the finance you need to scale your business to the next level, then please reach out .