Equity crowdfunding is a form of venture financing which has been growing in popularity over recent years via the medium of the internet.
Equity crowdfunding internet portals main functions are to provide would-be and more experienced investors with a place to locate investment opportunities and obtain an equity stake in those businesses by engaging in a funding round.
These equity crowdfunding platforms manage the investment round, ensure it meets legal standards and promote it to investors on their books. They can be important places to locate and close investments from investors outside your immediate network.
They differ to reward-based crowdfunding sites like, Indiegogo or Kickstarter where investors get a reward (product) in exchange for money, whereas on an equity crowdfunding platform, investors get a confirmed ownership (shares) in the business in exchange for their support. There are several equity crowdfunding platforms to select from. However, whichever platform you choose, the logistics of running your crowdfunding campaign will be essentially the same. Just as there is a “blueprint” for success on Indiegogo and Kickstarter, there are paths you can take to improve the prospects for success raising on an equity crowdfunding platform.
Let us explore the top tips for successful equity crowdfunding.
Prepare yourself legally
There are a multitude of rules and regulations surrounding who can invest in start-ups ,how they can invest, as well as how you market to them.
For example, you would not be legally permitted to launch a public equity crowdfunding campaign yourself as it would count as public offering, which requires FCA approval. As such, using one of the existing platforms built for the service is the only way you can do this without facing serious legal issues. The platforms are already FCA approved and will conduct the necessary due diligence to ensure that your company is ready for the investment before they will publish your campaign on their website.
Pick the right platform
Equity crowdfunding platforms are a great place to showcase your traction. There is no clear right or wrong answer when deciding on the perfect equity crowdfunding platform for your raise but there are some things to know before you make a final choice.
It is sensible to evaluate your list of potential crowdfunding platforms for curation, legal structure and investor community. Potentially, the our most favoured online crowdfunding platforms are CrowdCube, Seedrs, FundersClub, AngelList and SeedInvest.
So, let us explore the pros and cons of these platforms and how they relate to our assessment criteria.
Curation
Many equity crowdfunding online platforms promote the deals that can be fundraised on platforms, the rest allow anyone to participate. Being part of a curated group can build on prestige to fundraise. Curated groups have a combined interest in the benefits of the deals they select to attribute to. AngelList is an accessible platform, whereby anyone can post their fund raise. One way to differentiate on AngelList would be to get promoted by a syndicate platform, as syndicates do curate their deals. However, FundersClub and SeedInvest are curated platforms for which you need to be selected, in order to raise money. In other words, you will have to apply, and they will only post your campaign if they think it is an investable idea. On the other side of these platforms you have CrowdCube and Seedrs, which allow non-accredited investors to invest in your ideas.
Legal structure
There are several ways to form start-up financing, but equity crowdfunding has a structure of its own.
It is essential to understand the legal system and the implications of a raise, prior to committing oneself. CrowdCube and Seedr investors to invest at first hand into the organisation on the platform. In contrast, FundersClub connect individual investors together in a single direction channel built for investment in your business. As previously stated, controlling several shareholders on platform can be tedious, so a single direction model or FundersClub eliminates that complication.
Typically, you will be selling “B” shares, which are in essence non-voting shares in the business. This means that incoming investors will own a small percentage of the business, but will not have any voting rights and thus any direct control or influence over the company’s decisions or direction.
Investor community
The capacity and foundation of a platform investor group is vitally important and will have a fairly substantial bearing on the reach of your operation.
Equity crowdfunding platforms are similar in their function to a social network, as such you want to get known by and backed by the most influential users.
FunderClub, AngelList and SeedInvest are limited to accredited investors and U.S organisations. However, it is forecasted that many will begin to permit non-accredited investors to participate in a section of their deals in the years ahead.
The Canada-based Frontfunder is a platform formerly acquiring non-accredited investors already as is a platform known as CrowdCube.
Utilising a platform that is accessible to non-accredited investors could lead to less experienced investors participating in your round. However, it may also radically increase your possible investor pool. AngelList has the most sizable community of investors and entrepreneurs, but FundersClub and Seedinvest (managed platforms with fewer deals) promote more marketing influence behind the deals on their platform.
It is usually advisable to ensure that you pick a platform and push all your efforts into it. Though you can use multiple platforms simultaneously this can have the effect of diluting your campaign and losing you possible investors.
Follow other deals
A good way to master what works and what does not in an equity crowdfunding deal is to follow and take notes on the campaigns of other organisations.
Do this for a few months, before you start to fundraise.
If you are a recognised investor, you will be able to view public updates as well as investors updates. Nevertheless, even if you can only see public updates, you will still be able to gauge the tactics businesses are using to market their deal and the rate of their raise. Take heed of how the individual platforms vary, what works, what does not, and apply your learning during your raise.
Work directly with the platform
Largely, equity crowdfunding platforms will operate with entrepreneurs personally to assist them in designing, promoting and managing their campaigns, especially if they are enthusiastic about your product.
Discover who the key members of the managing community on your selected platforms are and connect with them directly to tell them about your campaign project. Utilise metrics and previous investors to animate your approach and make it more engaging. Although some equity funding platforms, similar to AngelList, require you to get approval prior to publishing a raise, it is advisable you get their support before listing. This can generate sound advice and extra exposure for your deal.
Create a great deal room
When you have chosen a platform, your next step will be to establish sales copy describing and effectively selling your opportunity to possible investors. You will be aware of how much you have raised and how much you have planned to raise to develop a public version of your deck. These details will be placed onto the platform to develop your “deal room”. This is the location investors go to to review your investment opportunity.
Ensure that you thoroughly finalise your deal room and make certain it is accurate and finished. On AngelList specifically, several investors scout for investment opportunities by interest or industry, so be sure to accurately illustrate your business and take adequate advantage of the tagging functionality in the platform. Many investors are industry-specific in the opportunities into which they will invest. So, it is important to make sure you are making yours easy for them to find.
Time the crowdfunding portion of your raise carefully
Your deal room will begin as a private version and you will need to determine exactly when to make your investment available to the public investment community, when to “go live” as it were.
Timing is paramount, equity crowdfunding is all about the drive. Try to abstain from publishing a raise on equity crowdfunding opening at £0 raised. It is essential to show other investors that there is interest already. The unwritten rule is to only disclose your deal on an equity crowdfunding raise after half the raise has been obtained. Ideally this will be used to fill the rest of the round, opposed to kickstarting a round.
Get backed by influencers on the platform
Equity crowdfunding programmes are, as already explained, like a social network. You need to try to get endorsed by the most influential users early on. This will ensure you get maximum exposure for your deal. Select these influencers prior to publishing your deal and encourage them to commit to the round before it is put live on the public platform.
This also gives those influential investors the feeling of special treatment, being given first look at something new and exciting will have a very good effect.
Take advantage of syndicates
On AngelList, you are not only able to get backed by individual investors, but also by online syndicate leaders. In the instance a syndicate lead backs you, your deal will be directed to all of their followers. This can generate a much quicker raise by using the trust already existing between the syndicate lead and their followers to promote your idea, rather than having to try and build it all on your own. Significant syndicates are run by founders of Barbara Corcoran, AngelList, Shark Tank and 500 start-up’s.
Line up your initial backers
In addition to having momentum when you go into the online part of your raise, it is better to have your lead equity crowdfunding sponsor lined up prior to going live. Capture offline commitment for your equity crowdfunding raise, give investors information on plans of when you may go live and earnestly gather those commitments on the first day of raise.
An introductory rush of investors, when your deal goes live will constitute social proof for other investors considering the deal.
Data Focus
Equity crowdfunding platforms are great places to display your traction. As there are not very personal in terms of their operation, any investor biases are generally mitigated as they are reduced to having to assess the deal purely online and make an assessment based on the merits of the deal’s delivery and copy – they do not get to like or dislike the founder presenting to them in an investor meeting.
This means your business can, more often than not, speak for itself.
If you are considering raising funds for your start-up or for a new venture in your business and you would like to learn more about how equity crowdfunding could help you achieve this, please get in touch with us today and book a free consultation!
For more information on getting your app idea funded please get in touch with us today on 0203 150 0565 or drop us an email at info@thealtitudeagency.com.
