It is a very helpful that many people who have been successful at using crowdfunding are prepared to share their tips and insights. This article includes some crowdfunding tips offered by four experienced users.
Due Diligence is often problematic
John Auckland of Tribe First, which provides crowdfunding “boot camps,” shared in a radio show that information given in team biographies often delays the crowdfunding due diligence process more than any other section of the pitch. Every claim has to be evidenced, including the management team’s career history with payslips and tax returns. It’s a challenge and failing due diligence checks can significantly delay a campaign. Rather than deliberately trying to mislead anyone, failure is often because people don’t have the evidence to hand for the claims being made.
“It might sound impressive that you made 10,000 sales last month, or achieved a 300% sales growth in just one year, but can you demonstrate it? If you’re making claims like this, you’ll have to offer the platform a complete list of your sales and show your working.” Source: John Auckland on Kent Business Radio.
This is corroborated by Chris Forbes, co-founder of The Cheeky Panda, a brand of tissues and related products made from sustainable bamboo, not paper (which is essentially from trees). “Entrepreneurs should keep in mind that due diligence is probably the most arduous part of the [crowdfunding] process. You’ll need appropriate evidence for every claim you intend to make in the pitch.” Source: Republic Europe (formerly Seedrs) case study.
Good crowdfunding is good marketing
Chris Forbes additionally shared that each of The Cheeky Panda’s equity crowdfunding rounds was also valuable for brand awareness and PR that lasted long after the rounds closed.
The business now has over 1,800 shareholders who are also avid supporters and who continue to advocate for, and positively impact the brand.
Every one of the shareholders can be extremely helpful, which is why he ensures that every effort is made to be as communicative and transparent as possible, even after the round has closed, to make sure that no inquiries go unanswered and to take the insights of shareholders on board.
Crowdfunding’s advantages over VC funding
Laurence Kemball-Cook is CEO of Pavegen, an innovative B2B company that generates sustainable electricity from people’s footsteps. In an explanation of why he chose to use crowdfunding to raise early-stage investment, he said the terms from VCs are always restrictive. “They want board seats, control, liquidation preferences, restrictive terms on the founders – all things which don’t favour the company raising money,” he explained in an interview.
Much of this is echoed by Chris Forbes of The Cheeky Panda. “For the last round [of equity crowdfunding] we spoke to a lot of Private Equity houses but they tend to be slower-moving, and we wanted to expedite the process. We didn’t want to give up large percentages of equity, end up with a mix of equity and debt, or undergo expensive board hires which would compromise our profitability. We also didn’t want to be instructed how to spend the funds by external parties. We prefer to do things our way, and the crowd supports that.”
Have a communications strategy
Patrick Dumas is co-founder of Square Mile Farms, a vertical farming business created to bring farming to urban spaces, boosting wellbeing and sustainability. He found that crowdfunding is a very busy, stressful and distracting process. A key learning for their second round of equity crowdfunding, and one of his crowdfunding tips to make it less stressful and more manageable, is to have a clear communication strategy to follow. This included LinkedIn and email outreach from the pre-registration stage onwards. They were more organised and proactive with their communications the second time, with a schedule list to work from.
Like The Cheeky Panda, Square Mile Farms has over 1,000 shareholders from crowdfunding, and the feedback they’ve had from them is overwhelmingly positive, constructive and straightforward, Patrick said in a case study. They issue quarterly updates, and occasionally people respond to them with a lead or recommendation, which they find really helpful.
After immersing myself in crowdfunding for almost ten years I have a few crowdfunding tips and insights of my own. Please get in touch via [email protected] if you have crowdfunding ideas or plans you’d like to discuss.