How to Run Successful Equity Crowdfunding

I had the privilege of putting questions to a number of international experts on equity crowdfunding in an event organised by Crowdsourcing Week. This article sums up their key insights. If you want to discuss any plans of your own, I’m an independent crowdfunding advisor, which means I have no ties to any particular crowdfunding platform beyond my own personal investments. Send an email to [email protected]

Raising capital through equity crowdfunding

Andrew Zhang of Republic, a U.S. equity crowdfunding platform, ran through the essential structure of a money-for-equity campaign.

They have certainly hosted enough projects to have built up a wealth of insight and experience. Republic has enabled over 150 companies to raise a total of $45 million. Last year the average raise was $500,000. Most of the investors were non-accredited, and the raises were capped at a top limit of $1,070,000 by SEC regulations.Top Insights to Successful Equity Crowdfunding

Equity crowdfunding can run alongside other funding mechanisms that between them can bring in a maximum of $5m.

There is a strict vetting process to ensure that only the best opportunities are put to Republic’s database of investors: under 1% of all applicants end up launching a campaign.

However, keeping to the theme that equity crowdfunding has democratized the process of funding a startup business, 40% of project leaders have been women, and 20% have been Black or Latinx.

Funding generally comes from four sources: friends and family; people who know the business – customers, suppliers, other stakeholders; Republic’s network of investors; new supporters brought in by marketing activities.

Top Insights to Successful Equity Crowdfunding

The usual timeline is for a three to four month campaign from going live online to issuing shares to new shareholders. Though prior to this there are issues including arriving at a company valuation, preparing marketing materials, and pre-selling to reach c. 30% of the financial target. Pre-selling ensures a campaign starts with a bang and not a whimper, and gives it dynamic momentum that attracts investors looking for a home for their money.

Lessons from 10 years of crowdfunding in Europe

Christin Friedrich, CEO of the Innovestment platform in Berlin, is also Chair of the European Crowdfunding Network.

Top Insights to Successful Equity Crowdfunding

Key lessons include the realization that at whatever stage of a company’s growth, in addition to raising money, successful crowdfunding involves, builds and strengthens communities. In an increasingly competitive environment this requires expert communication skills.

An equity crowdfunding project should make it clear what it is asking for; what the organisation raising the money hopes to achieve; and who will benefit. Any funder can go on to become a customer, an advocate, or a supplier. So keep communicating after the crowdfunding closes, share news about your progress through achieving milestones or report on KPIs.

As well as improved professionalisation of all aspects of the process, regulations are adapting to crowdfunding being a global practice. Funds need to flow freely to encourage cross-border financing, though authorities have to be aware of laundering. European harmonisation through the ECN will ease cross-border payments from outside the EU – which of course from 1 January 2021 includes the UK.

Retail investor access to VC deals

Equity crowdfunding is often described as having democratised access to investment funds for startup owners who do not mix in the same circles as high net worth individuals and VC managers. In the same way, equity crowdfunding has opened up opportunities for retail investors to invest in private companies, sometimes alongside institutional backers.

Top Insights to Successful Equity Crowdfunding

Jonathan Medved is CEO of Israel-based OurCrowd.  As the country’s biggest VC investor, he said their links with crowdfunding are becoming more stretched and tenuous than before, though they still allow individuals to piggy-back on their VC investments. For a management fee and a 20% carry-over on profits, retail investors can enjoy the same pre-IPO terms as a VC. Half of OurCrowd’s investment deals are in Israeli businesses.

OurCrowd’s prospects are looking good. Their investor network includes 50,000 U.S. accredited investors. Jonathan is delighted the U.S. SEC (Securities Exchange Commission) is relaxing its stringent rules on who is allowed to invest, and how much they can invest, through crowdfunding projects. Professional qualifications can now replace former demarcations based on income or savings definitions. And smaller businesses will be able to raise more than the previous cap of $1,070,000.

Also, a recent normalisation of political and trade relationships between Israel and the United Arab Emirates has the potential to unleash a torrent of investment capital, perhaps as much as half a billion USD in the first 12 months.  

Crowdfunding for Policy Makers

Author and management consultant Tim Wright, of TwinTangibles, closed the event with a session based on insights gained from co-authoring a recently published book “CROWDASSET, Crowdfunding for Policy Makers.” The book looked at crowdfunding from a variety of perspectives, given that policy makers can represent the interests of diverse stakeholders.

His visual device representing the core benefits of a crowdfunding campaign relates to core policy maker interests. In gaining a better understanding of what is of key concern to policy makers, crowdfunding project leaders can better ensure their campaign is fit to succeed.

Top Insights to Successful Equity Crowdfunding

Naturally, the key element of the whole exercise is that businesses want to grow. For that they need Finance, which in equity crowdfunding is achieved by selling part-ownership of the company. This aspect is overseen by financial regulators and authorities that ensure compliance with financial regulations. National tax regimes differ on how they treat the funding received, cross-border investing is scrutinised for possible money laundering, and the U.S. has an added complication of different rules that apply to accredited and non-accredited investors.

Some countries still bar equity crowdfunding in the interests of protecting unsophisticated investors from possible financial harm, including India.

Crowdfunding also provides Insight to company founders through receiving feedback from people on the nature and structure of the business, validation of the value put on the business, and feedback on the proposed products or services to be delivered. Business trading standards authorities, as an example, would be keen to know that any products offered by firms using crowdfunding meet statutory minimum requirements.

Good Communication is vital to succeed. This covers the marketing activities, raising awareness and stimulating sales. Most countries have extensive regulations on what can and can’t be said about crowdfunding opportunities, which can differ from one to another. So a crowdfunding campaign can’t always be picked up from one country and then run again in another.

Networks relates to a business’s customers, suppliers, supporters (who may not always be customers), and social media followers. Trading and Advertising authorities would once again be involved here.

And finally, there are also the vested interests of the crowdfunding platforms themselves, who are often members of their own professional trade representation and lobbying group. Such groups include the UK Crowdfunding Association, European Crowdfunding Network,  National Crowdfunding & Fintech Association (NCFA) in Canada, and Bundesverband Crowdfunding eV in Germany.

The breadth of interests and responsibilities of related policy makers is thus extremely wide.

Don’t forget, if you want to disucss your own thoughts or plans for an equity crowdfunding project feel free to email me in confidence, I’m an independent crowdfunding advisor: [email protected]

10 Top Tips for a Career Change Fuelled by Crowdfunding

Image source: simplybusiness.co.uk

Covid-19 vaccinations have started and perhaps provide a route back to some normality within a few months. Though many businesses haven’t had the luxury of being able to simply batten down the hatches and wait that long, and many people who used to work for them face a turbulent 2021 full of change.

The ranks of the self-employed and small businesses are going to grow. Crowdfunding provides solo entrepreneurs and startup businesses with many benefits, including product testing and raising awareness alongside raising finance without melting down credit cards, re-mortgaging the family home or taking on other forms of a loan guaranteed against personal assets.

Business experience is valuable

Those who had reached the autumn of their career may feel particularly uncomfortable about going it alone in a fast changing world where digital natives appear to be increasingly calling the shots. Yet as The  Blockheads’ band leader Ian Dury might have said, there are reasons to be cheerful.

A study conducted by the US Census Bureau and two MIT professors found:

  • A 50-year-old tech startup founder is 2.2 times more likely to be successful than a 30-year-old.
  • A 50-year-old startup founder is 2.8 times more likely to be successful than a 25-year-old.
  • A 60-year-old tech startup founder is 3 times more likely to be successful than a 30-year-old.  

Not everyone works in tech, though I find it reassuring to know that founding a successful startup isn’t the exclusive preserve of the young, and that the younger business founders aren’t always the best. In my role as an independent crowdfunding adviser I have met many startup founders of all ages. It is always dangerous to make sweeping generalisations, though the high value of transferrable skills and just general understanding of how businesses run is much stronger among older founders. They appreciate far better how solidly things have to done, how robustly claims and plans have to be validated, and that hope isn’t a strategy.

10 top tips for a career change

I’ve been made redundant twice, and worked for a company that folded and left us all high and dry. I know how former salaried employees in their 50s feel, and I offer my ten top tips on setting out in business alone.

  1. Doing new things, outside of a comfort zone previously full of support, is scary. You’ll get through it.
  2. Most of your previous contacts have become useless because they were part of that former comfort zone, your former life.
  3. Reconsider the people who you know, and build connections among a new group of people who are going to be able to help you.
  4. Think equally about how you can help them, relationships will not be built just on how they could help you.
  5. It’s difficult to achieve a target daily pay rate, so do what comes up that looks like it would be good to be involved with.
  6. But don’t forget that time is your most precious asset, particularly when starting a new enterprise later in life.
  7. What you knew before is not going to be enough. You should remain curious and love learning. This is now easier than it ever was with the range of material available online.
  8. Add practice to your knowledge, by simply getting out there to start providing others with the benefits of your knowledge and skills. Even work free for a local charity or community group rather than keep them to yourself. This will help teach you how to best present that knowledge in a way that builds confidence.
  9. Confidence is what your new customers, and maybe later on partners or investors, will recognise and buy in to.
  10. Work with people you like, who respect you, and pay you on time. Life’s too short to do otherwise.

Considering crowdfunding?

If you want to know more about crowdfunding, either as a means to check consumer demand for a new product, or to raise finance for a business to grow, you could start by following me on Twitter. I also regularly write articles about crowdfunding for Crowdsourcing Week. When you’re ready for a conversation, please first email me at [email protected]. I am an independent crowdfunding adviser, providing objective and impartial advice with no ties to any particular crowdfunding platforms.

International Lessons on Achieving Crowdfunding Success

My work with Crowdsourcing Week as a content marketing creator and as an independent crowdfunding advisor has brought me in to contact with crowdfunding experts and thought leaders from around the world. We have talked about reward crowdfunding, equity crowdfunding, and crowdfunding being used by major corporates. I’d like to share some recent insights.

Lessons from 10 years of Crowdfunding in Europe

Christin Friedrich, CEO of the Innovestment platform in Berlin, is also Chair of the European Crowdfunding Network.

Top Insights to Successful Equity Crowdfunding

Key lessons learned at the ECN include the realisation that at whatever stage of a company’s growth, in addition to raising money, successful crowdfunding involves, builds and strengthens communities. Though in an increasingly competitive environment this requires expert communication skills.

An equity crowdfunding project should make it clear what it is asking for; what the organisation raising the money hopes to achieve; and who will benefit. Any funder can go on to become a customer, an advocate, or a supplier. So keep communicating after the crowdfunding closes, share news about your progress through achieving milestones or report on KPIs.

As well as improved professionalisation of all aspects of the process, regulations are adapting to crowdfunding being a global practice. Funds need to flow freely to encourage cross-border financing, though authorities have to be aware of laundering. European harmonisation through the ECN will ease cross-border payments from outside the EU – including the UK.

Evolving best practices in Reward Crowdfunding

New Zealander Nathan Rose is a crowdfunding strategist and author, his latest book is about reward crowdfunding. Across several years he has been able to track changes to what used to be, and what are now, the key factors for rewards crowdfunding success.

Crowd-building and effective communication strategies have definitely changed over the years. For example, these days, many more successful projects have used paid-for social media advertising.

Though project owners should not rely on purely virtual contact – he recommends getting out to events and meet influential people in person. Though beware of trade shows where more people are likely to be like yourself, looking for investment, rather than be potential backers.

PR efforts to crowdsource media coverage remain a valid activity, though not for the reasons you might expect. A published article is unlikely to generate much traffic to a crowdfunding project, though a collection of media logos is a strong endorsement of the viability of a project once site visitors see them.

Nathan also warned of a classic error. He still comes across project owners who calculate the production cost of the rewards they will supply, and set a donation value without checking  the fulfilment costs to deliver the items. Seemingly successful projects can then sometimes incur a loss for the project owner, or are simply abandoned leaving many disappointed backers.

Tips for startup founders on running Equity Crowdfunding

Cheryl Campos, Director of Growth and Partnerships at the US equity crowdfunding platform Republic. Cheryl provided the article’s main image on a general timing plan for an equity crowdfunding project.

Before accepting an investment opportunity to put to its network of half a million investors, Republic uses four important criteria to evaluate startups: “The 4 Ts.”

Team
A startup funder has to have prior career and industry experience that adds up to a set of skills and expertise that can give investors confidence. But few investors will back a one-man (or woman)-band, and want to see a credible management team already in place, a team that has bought in to the founder’s vision of the startup business and have the ability to make a solid contribution.

Traction
Evidence of traction includes a passionate and engaged user base. Perhaps this has been achieved by an earlier round of rewards crowdfunding?

Technology
Is the startup’s product range superior to competitors? Or maybe their technology to make their products is superior, delivering a cost advantage. Are they following the sector’s traditional business model, or have they developed breakthrough innovations to shake up the established incumbents?

Terms
The terms a startup offers investors can vary, based on different methods of estimating a company valuation and with different classes of preference or voting shares, for example. It could make it harder to reach a financial target if crowdfunding backers receive poorer terms than other investors.

Corporate use of Crowdfunding

Esben Bistrup Halvorsen, Co-founder and CEO of Danish platform Lendino, gave a Crowdsourcing Week webinar some examples of major corporations using reward crowdfunding.

Sony has a co-creation and crowdfunding platform called First Flight, which operates within Japan only. It encourages entrepreneurial “Challengers” to propose ideas and suggestions for new products and services and allows them to canvass for input and support among a community of Sony fans and early adopters.

Fleshed-out ideas that have withstood this crowd’s scrutiny can then go on to a reward crowdfunding stage to check for demand to actually acquire the product or use the service. Where response from Sony’s First Flight crowd is strong enough to warrant investment, Sony makes the products and services available. Who knows, someone may come up with the best idea since the Sony Walkman!

Thinking about your own Crowdfunding?

In this most recent stage of my marketing career I’ve immersed myself in crowdfunding for the past six years. The crowdfunding projects you see hosted on any of the crowdfunding platforms are like looking at the 10% of an iceberg that’s visible above the water level. If you want to know the full extent of what has to be prepared to achieve success, let’s have a call. In the first instance please send an email to [email protected]

Crowdfunding Benefits More Than Just Startup Businesses

Various forms of crowdfunding enable startup businesses to inexpensively test market new products, and for private companies to trade equity in exchange for an investment from new shareholders. However, perhaps it’s my time spent sailing at Greenwich Yacht Club, as well as my work as an independent crowdfunding advisor, that recently drew my attention to two very well established businesses that are currently using crowdfunding to pursue a range of objectives.

Rewards Crowdfunding

Rancourt is a US family-owned and run business that has been making handmade moccasin-style shoes, popular with “yachties,” since 1967. They subsequently expanded their range to include boots, dress shoes and leather sneakers. Today, like many other businesses the world over, and despite its good reputation, Rancourt is suffering under Covid-19 lockdown restrictions.

Crowdfunding isn’t just for startup businesses

Through their own website, they have started offering shoes in a limited number of styles on a rewards crowdfunding basis at wholesale prices. They will collect orders to a threshold of around 150 pairs per style, then make shoes in batches of 300. This will ensure they don’t produce an over-supply of stock that will tie up their stretched cash resources and then simply gather dust.

There are several benefits to trying to generate business even if it will not make them much immediate profit.

  • It will keep their artisan workforce employed
  • It will generate business for their supply chain
  • It gives new customers an opportunity to experience their premium products at an advantageous price
  • The cash income will contribute to central overheads
  • They will avoid producing unwanted stock

In crowdfunding terms this is known as the “All or Nothing” model. A crowdfunding project can ask people to pre-order, while also setting a minimum total order figure. That figure will be calculated to cover the raw materials, ‘tooling up’ and all other costs of a first production run, plus delivery of the finished goods.

If the stated minimum target is reached, production goes ahead on a de-risked basis. If it isn’t reached, any pre-payments are returned to customers and the product creators can have a rethink without having incurred costs of producing unwanted goods, hiring storage space or servicing a debt.

In the UK, crowdfunding operates outside the Sale of Goods Act. Due to the time it could take to reach the minimum order total, and produce and deliver the goods, some of the earliest ‘purchasers’ may have to expect to wait longer than 28 days to receive their orders.

Equity Crowdfunding

The second sailing-related project I noticed is being run by a Swedish engineering company, GreenStar Marine International. They have been in business almost 20 years and make a range of inboard and outboard electric motors for all types of recreational boats.

They have no protected intellectual property in their motors, and now that sustainability and safeguarding waterways is a higher priority for many boat owners and users, GreenStar want to expand their silent-running and fume-free product range and dealer network faster than they would be able to through organic growth.

They are offering equity in the business to investors who will become shareholders, and thus share the risks and rewards of company ownership. Crowdfunding has democratised the business fundraising process, that was previously available mainly to people with access to “old boy networks” of VC investors or high net worth individuals.

At the time of writing GreenStar Marine International had raised 131% of their target with 69 days still to run.

With almost two decades’ experience of running their business, they are confident of a high rate of return for investors when they go ahead with an IPO planned for late 2021. Though capital is always at risk, and nothing can be guaranteed.

To learn more about Crowdfunding, registration is now open for free tickets to an all-day webinar on August 27 featuring a range of international speakers. The link gives further information.

In the meantime, feel free to contact me if you are considering crowdfunding to test a new product, to launch a new business or expand an existing one. I am an independent crowdfunding advisor, uninfluenced by formal ties to any specific crowdfunding platforms. Email me at [email protected]

Why Do Many Startups Still Fail After Reaching A Crowdfunding Target?

I have looked at this topic because I help small businesses and startups raise money through crowdfunding. There are plenty of times when an influx of investment allows them to scale up, which can often mean introducing new procedures and “control levers” to steer colleagues/employees, and maybe suppliers and customers, in new directions. It doesn’t always run smoothly.

Unfortunately for these plans, most people are naturally and inherently change resistant. It’s in our DNA to want to keep things around us they way they are. It’s a fundamental part of our defence mechanism as it helps us to spot anything out of the ordinary or unexpected that could be a threat. “Human beings are programmed to fear the unknown,” says a recruitment tv commercial for the Royal Marines.

Many change initiatives fail because they are decided by a management minority and then foisted on to the majority, employees or other stakeholders, who are suddenly supposed to adopt new ways of working that are unknown to them. Without adequate pre-selling or involvement in a process to bring them on-side from an early stage, a change initiative can be sunk by a majority of people simply sticking to doing what they previously did in the ways they previously did it.

This can even be the cause of friction between business founders if they didn’t all agree on the scaleup measures to begin with. In a business’s early days, it might all be about taking risks. As a business develops and goes through successive funding rounds, whether it’s money from a crowd or institutional investors, or even sales, the emphasis – and perhaps pressure from new shareholders – can change to “let’s not start to muck it up now that we’re nearly there.”

Perhaps high risk-taking mavericks that were the company’s early spearhead are still in the team, but may be less disposed to a more cautious approach – and the new people who will now help implement it. This is one example of how friction can develop, distracting effort away from building the business before it’s even standing on its own two feet.

This is what’s meant by “company culture eats strategy.” Company culture is an emotional element that binds colleagues together with shared expectations of each other, and it has to be tackled alongside procedural ones to initiate change. A startup team will have often developed a strong culture, meddling with it can be tricky.

For more on the topic, take a look at this article (which is nothing to do with me, I just liked the look of it from the ones I found in a Google search): Culture eats strategy for breakfast – The Management Centre. It also has a five point plan to initiate change successfully.

Equity Crowdfunding Works for B2B Businesses

There is a common misconception that crowdfunding is only applicabe to B2C businesses. On recently seeing a question posed on Quora, asking if anyone had got some examples of B2B startups that had used crowdfunding, there were three that immediately came to mind.

Energytech
A crowdfunded B2B business I have invested in is Pavegen. They generate sustainable electricity from people walking on their floor tiles which are installed in high-traffic places like shopping malls and sports stadia.

Their customers include transport system operators, and owners of shopping centres and sports and entertainment venues: Pavegen – Global leader in harvesting energy and data from footfall.

Transport infrastructure

Another B2B company that has used equity crowdfunding in the UK is MacRebur. They reinforce asphalt with recycled plastic to create a more resilient road surface, and help reduce the amount of plastic waste.

They have also resurfaced some airport runways, and recently announced a pothole repair material that will be available in 20kg bags: macrebur.com. Their customers include airport owners, local councils and highway authorities.

Agritech

To give a third example, I made an equity crowdfunding investment not long ago in an agritech business called Hectare. Traditional farmers’ markets in the UK are closing down at a rapid rate, meaning more and more farmers have to make long and arduous journeys to take livestock to market. And sometimes it means driving their fit and healthy animals through areas where there is a higher risk of disease.

Hectare provides online marketplaces for farmers to check current prices and sell animals at SellMyLivestock and crops at Grainindex. Their B2B customers are farmers and agricultural produce buyers: Hectare Agritech | Reinventing Farm Trading

Equity Crowdfunding and Venture Capital Working Together

Equity Crowdfunding and Venture Capital Working Together
Not so long ago it was still quite common to come across articles that tried to pitch VC investors and equity crowdfunding supporters and platforms against each other, as if every startup business entrepreneur faced a binary choice of which investment route to pursue. There are growing signs that the complementry rather than competitive nature of these sources of startup and scaleup business funding are beginning to be appreciated.

Many startup founders seek investment budgets that are beyond the resources of friends and family backers, yet are too small for VCs to normally bother getting out of bed for. And if a business is in its earliest days without a trading history or future sales orders, there’s precious little hope of securing a business loan, whether from a traditional source like a bank or from a peer-to-peer lender such as Funding Circle. So there is a true gap in the business investment market that equity crowdfunding occupies, at the same time as providing better returns for small-scale investors than they can get from high street deposit accounts or investment schemes.

It remains fair to say that equity crowdfunding is not yet a fully developed entity due to the small number of exits that have allowed investors to reap their rewards: the UK Crowdfunding Association’s website has just one solitary case study (though there have been more). Other business finance commentators harp on about the startups that still fail, sometimes within months of raising seven-figure sums through crowdfunding, as if crowdfunding ought to provide some mystical defence shield against business failure.

Despite these shortcomings, the rude health of hundreds, even thousands of startups around the world that have traded equity for an investment from a crowd of backers supports enough confidence for the practice to continue to grow and spread.

It has now reached a point where venture capital firms are not only taking notice but some also want to be involved. In the UK, for example, the startup support division – called G – of the global accountancy firm Grant Thornton works with the equity crowdfunding platform Crowdcube.

It is a symbiotic relationship: Crowdcube can offer its clients a longer business development path than just realising their earliest investment rounds, and Grant Thornton gains an entry point to build relationships with promising entrepreneurs before they are big enough to usually be worth their attention. G also offers to make introductions to some of its network of investors who have indicated they are open to the idea of making early seed-stage investments. Here is an example of this co-operation in practice.

GunnaEquity Crowdfunding and Venture Capital Working Together is a range of uniquely-flavoured, craft-made soft drinks which aims to disrupt the established carbonated drinks marketplace in a similar way that craft beer has. It retails at a competitive price for a product made with better quality ingredients, and contains less than 5% sugar to be part of a healthy lifestyle. In 2018 it was available in over 3,500 UK stores, sales were up 300% on the previous year, and their highly experienced founders wanted to raise funds to accelerate the growth rate.

Initial discussions with Grant Thronton indicated that £500,000 would be appropriate to build distribution through recruiting additional sales people and investing in trade marketing. Although this amount is below Grant Thornton’s minimum threshold, their growth finance team remained involved to get Gunna investment-ready to run equity crowdfunding via Crowdcube to raise the money.

Support from some cornerstone investors who wanted to get involved at the ground level, introduced by Grant Thronton, strongly reassured a crowd of smaller retail investors. The equity crowdfunding project generated £819,150 from a total of 245 backers. As Gunna grows it’s likely there will be a need for further, larger rounds of investment which will meet Grant Thornton’s VC-backing criteria. Gunna’s hoped-for exit strategy is acquisition by an international drinks company.

A less formalised example is that of a business founded in 2013 that recycles surplus fruit and vegetables to make traditional recipe relishes and chutneys, Rubies in the Rubble. They were able to gain investment backing from Mustard Seed, a VC fund that takes a principal investor role in world-class early-stage businesses that generate compelling financial and societal returns.  However, beyond accepting £160,000 from Mustard Seed, the founder of Rubies in the Rubble, Jenny Costa, used it as cornerstone funding to launch an equity crowdfunding project on the Seedrs platform.

A rule of thumb has evolved based on empirical evidence that successful crowdfunding projects ought to start with very early pledges of at least 30% of their financial target. This is achieved through personal pre-selling by the project leader and their team to guarantee – as far as possible – that their project starts with a bang and not a whimper. This creates momentum as it gives vital confidence to what are usually smaller retail investors who require some reassuring encouragement to take the plunge.

Equity Crowdfunding and Venture Capital Working TogetherRubies in the Rubble set a target raise of £300,000, in which Mustard Seed’s investment easily covered the 30% requirement. By 3 June 2019 the project on Seedrs has easily surpassed the initial target and wss overfunding at over £535,000.  The funds are to support the launch later in the year of a mainstream ketchup product and a vegan plant-based mayonnaise. The business aim is to capture 3% of the UK ketchup and mayo market by 2023, whilst continuing the fight against food wastage. A trade sale is the most likely exit strategy.

Please get in touch for further insights and support on how you could use crowdfunding to raise money to startup or scaleup your business, plus reap the benefit of numerous other advantages. I’m an independent crowdfunding advisor, not tied or affiliated to any particular platforms: [email protected]

Crowdfunding does more than raise money

Crowdfunding does more than raise money

I was recently asked about crowdfunding by the founder of a startup business that makes a range of non-alcoholic wine.  There was nothing confidential in my reply, so I thought I’d share it with you.

You’re absolutely right that crowdfunding can be a more time consuming way to raise money compared to perhaps a VC investment or an angel investor. Yet there are other benefits that go way beyond the money it raises.

For example, VCs were queueing up to invest in Chapel Down (the celebrated English sparkling wine maker) when in 2014 they launched their equity crowdfunding campaign. Beyond raising £3.9m in three weeks, their CEO Frazer Thompson told me that crowdfunding had generated 1,500 brand advocates who would spread positive word-of-mouth, buy Chapel Down products at every gift-giving opportunity, and create sampling opportunities by stocking their wines (now beers as well since they built a brewery with some of the money they raised, and gin too) both at home and in their company drinks cabinets. Priceless!

Crowdfunding creates a virtuous circle whereby customers can become shareholders and shareholders become customers. I’m caught up in it myself as an investor in a craft brewery and a gin maker. If “my brands” are available,  why drink others? Shareholders catapult themselves right up the brand loyalty ladder.

Hop Stuff Brewery started five years ago when it raised £58,000 through offering 34% of equity. It’s now valued at over £25m, with products stocked in Wetherspoons (which encourages lower than regular cost product trial), Tesco and Majestic Wine; it has a growing chain of beer and pizza outlets; and international sales and franchise brewing agreements.  Hundreds of their 1,000+ investors from three rounds of crowdfunding on Crowdcube attended an “Investor Fiesta” event at their new brewery back in August.

A network of investors can be used for research purposes and to ask for ad hoc assistance such as help recruit staff,  recommend suppliers, volunteer their own services, and so on. At the Hop Stuff event I heard a fellow investor volunteer to use his contacts to help sort out supplies of CO2, which if you remember was in short supply in the summer.

Crowdfunding does more than raise moneyEven if it’s not a main aim of the crowdfunding, it could find you an angel investor. This happened to some people I know who started a business making tissues from bamboo. To begin with, all they wanted was an initial £10,000 of orders through rewards crowdfunding to provide validation they weren’t wasting their time. A backer was impressed with what he saw and stepped forward to invest, which allowed the founders to greatly speed up product development and company growth. So do eveything as professionally as possible.

They were a top-seller on Amazon very quickly. Within three years the company founders raised £500,000 in October 2018 for 10% equity on the Seedrs crowdfunding platform  – they had a business valued at £5m!

Their latest news is The Cheeky Panda tissues are now stocked in Tesco and Morrisons; in the summer they signed a £1m corporate investment deal that valued them at £20m; and right now they are running a second round of equity crowdfunding for existing investors in which they are offering 5% for £1m.

Good crowdfunding is also good marketing. I call it an ultimate direct marketing campaign. There’s a start date, an end date, lots to do, and if you fail to hit target you don’t raise any money. Naturally there are risks, though by breaking a crowdfunding campaign down in to component parts each potential risk can be addressed and minimised. I’ve created a Seven Stage Assessment to check if a business is ready to start crowdfunding, and identify areas that need to be addressed before going public.

My approach is more from a marketing angle, since that’s what I’ve always done. I am not a finance expert and not qualified to give financial advice. Though I can provide an experienced layman’s assessment on how appealing any offer may be to the public. I do have a post-grad diploma from the Institute of Direct and Digital Marketing and a Professional Diploma in Management from the Open University Business School.

One vital tip is that crowdfunding should not begin until you have done enough personal pre-selling for 30% of the financial target to fly in to your crowdfunding campaign within the very first few days. This applies whether you’re trying to generate product orders or offering equity. This gives immense confidence to other backers who don’t know and haven’t met you, and creates valuable momentum. So if you have a target of £200,000 your pre-selling should reach a guaranteed support level of £60,000 in the bag before you start crowdfunding in the public eye (ideally more to allow for dropouts).

Early success is newsworthy and hard-working PR will generate media coverage to add to your early momentum.  On the other hand, crowdfunding without pre-selling is like shovelling quicksand – hard work and you get nowhere.

How much it costs and how long it will take depend on:

  • how well your business rates against my Seven Stage Assessment
  • how much work has to be done to become investment-ready
  • of that, what can be done internally and how much has to be outsourced
  • including how enthusiastic and good you are at using social media – and “it’s ok, my kids use Facebook, they can help” isn’t good enough
  • success rate of using PR to secure media coverage
  • how long it takes to drum up support to reach the first 30% of your target.

If you have no social media networks to drive people to your crowdfunding project it may first require months of work to build some. Or months to accumulate impressive media coverage you’ll be able to refer to, or both, ideally.

Outsourcing support and input can even begin with the pitch document. A 30-chart deck may be very thorough but it’s too much for a potential equity investor to wade through with enthusiasm. Most look for the first reason they can give themselves as to why not to invest so they can move on to the next opportunity. Simply having to spend too long to get a feel of an opportunity is a good enough reason to discard it right away.

Don’t forget the taxman. Many retail investors prefer businesses to be registered with HMRC under EIS and SEIS agreements. These Enterprise Investment Schemes allow tax-paying investors to claim valuable rebates of up to 50% of the cost of their investment, and shelter capital gains from CGT. Under SEIS a company founder can invest up to £100,000 in their own business and claim a refund. Make sure you understand and take advantage of these benefits for yourself and your backers.

To close, what you see online when people and organisations run crowfdfunding campaigns is like the tip of an iceberg visible above the waterline.  Invisible under the water is a vast amount of planning and preparation, and a fair amount of stress. It’s not impossible to run a crowdfunding campaign alone if you’re tough and resiliant enough, though most people need some help and support, be it technical or emotional or anything else. This comes either from a team of willing supporters who between them provide all the necessary skills required to achieve your success, or you need a budget. Most times it’s a bit of both. If you want to talk about your ideas that could transform your life please get in touch, [email protected]

How Crowdfunding is Changing Business

How crowdfunding can turn a holiday idea in to business reality

For many startup entrepreneurs (and d-i-y investors who back them) the most significant form of modern day crowdsourcing is crowdfunding. Rather than trying to impress a single backer to support a business idea, perhaps through chasing a grant or bank loan, or by catching the attention of an elusive angel investor, crowdfunding has decentralized the process and enables business startups to ask crowds of people directly – some of whom they know and many they don’t – to each provide a relatively small level of support.  It also builds communities of followers and supporters, where customers become investors and investors become customers in a virtuous circle.

Favourable “light touch” treatment of equity crowdfunding (where investors pay for a slice of ownership of a business, and accept the risk that it may fail) by the financial regulators allowed the UK to emerge as the world’s market leader. Crowdcube was one of the first equity platforms to appear, in 2011, and it recently announced a total figure of more than £500 million invested so far in 700 funding rounds. The banking app Revolut and the Scottish brewery Brewdog, both currently worth over £1 billion, launched through Crowdcube.

Although some of the startups supported by crowds of sometimes relatively unsophisticated backers might be mocked by professional investors for some fanciful financial forecasts, many disruptive and challenger brands have emerged whose impact on established business sectors often far outweighs their market share or company valuations. Being new can mean a fresh approach unbound by a legacy of the past, even though a lack of a track record makes it hard to interest traditional investors at the beginning.

Here are examples in three business sectors where challenger brands used the power of crowds and are disrupting the status quo.

Banking
London-based Revolut, the UK’s fastest growing fintech company, ran a crowdfunding campaign as recently as 2016 to raise £1m and get started. Crowdfunding was also good marketing for them as it generated a core crowd of hundreds of investors who would become keen customers and brand ambassadors.

Crowdfunding is Changing Business

Revolut’s CEO and co-founder Nikolay Storonsky

The co-founders’ business idea came from their personal frustration with exchange rate markups, inexplicable foreign transaction fees and the overall hassle of managing a bank account abroad.

Today, Revolut provides over two million customers (two million customers acquired in two years!) with a debit card allowing the holders to spend money in 150 currencies with no fees. They estimate they have saved their customers over £560m in traditional banking fees, and in 2018 raised $250m through corporate investment which valued the business at $1.7bn (£1.2bn).

Brands like Revolut and fellow banking newcomer Monzo are definitely shaking up the traditional banks and changing customer expectations. The technology was there, but the existing high street banks still provided us all with slower, less sophisticated and more expensive services. With us all the way, are they?

Brewing
Behind Brewdog which is now a unicorn startup valued at over £1bn, there are many smaller craft brewers that continue to launch with modest funding and provide UK drinkers with a vast choice of beers and ales made with hands-on quality control and finer ingredients than high volume mass-market brands can access in sufficient volume.

Crowdfunding is Changing BusinessAn example is the fast growing Hop Stuff Brewery in south east London. City finance professional James Yeomans found he enjoyed home-brewing more than his time spent in the office and became determined to take it further. In 2013, without any commercial brewing experience – but he could talk “money” – he used equity crowdfunding through Crowdcube to raise £58,000 in exchange for 34% ownership of his startup craft beer brewery.

The business grew, and alongside attracting corporate investments it ran a second round of equity crowdfunding that closed in January 2017, and then a third smaller one in early 2018. Although corporate investors were by now queuing up for a slice of the business and crowdfunding was unnecessary for purely financial reasons, crowdfunding has provided Hop Stuff with a dedicated following of over a thousand supporters happy to perform unofficial Brand Ambassador roles. They influence people to sample the brewery’s products through positive word-of-mouth, and ask pubs and bars where they drink to stock them.

Hop Stuff is currently opening a number of its own “beer and pizza” bars under the Taproom brand, filling a global order book and signing overseas franchise brewing agreements. Compare this to the rest of the UK beer trade: the British Beer and Pub Association (BBPA) recently reported annual sales were 1.7% down, and in August 2018 the BBC reported UK pubs are closing at a rate of 18 a week. Hop Stuff Brewery is certainly bucking the trend, has just moved to larger brewing premises, and five years after launching with £58,000 raised through equity crowdfunding it is valued at over £25 million.

At an invite-only event for his crowdfunding investors in August 2018, founder James Yeomans announced that packaged Hop Stuff Brewery products will soon be on the shelves in London branches of Tesco, Oddbins and Majestic Wine.

Grocery items
Bamboo is a fast-growing sustainable product with four growth cycles a year. Tissues made from bamboo rather than paper are naturally stronger, softer and more hygienic. They can be made with a 65% smaller carbon footprint.

Crowdfunding is Changing BusinessWho created and introduced this breakthrough eco-friendly product to the UK? Was it corporate giants Kimberly-Clark or Procter & Gamble that own market-leading worldwide tissue brands? No, it was a pair of UK holidaymakers who returned home from China, researched possibilities and wrote a business plan to utilise abundant supplies of unwanted surplus bamboo they had seen being left to rot.

A modest reward crowdfunding project on the Crowdfunder UK platform with a target to generate £10,000 of orders gained the attention of a crowd of early adopters and, by chance, an angel investor. Within three years the founders of The Cheeky Panda tissue company ran an equity crowdfunding campaign with Seedrs that raised £500,000 and valued their business at £5m. The brand is a top seller on Amazon.

So even in the high-volume fmcg sector (fast moving consumer goods) dominated by massive brands that are supported with multi-million £ advertising budgets, crowdfunding – the crowdsourcing of both money and a community of supporters – enables entrepreneurs to introduce innovative products and disrupt existing markets.

Mayor of London Has £1m For Community Projects Using CrowdfundingIf you are considering crowdfunding as a means to launch a startup, or maybe to grow an existing business, I can provide you with independent crowdfunding advice and hands-on support. I have no ties to any particular crowdfunding platforms. Please email me, [email protected] Let’s discuss your ideas and set about building them in to a plan of action.

10 Tips on Reward Crowdfunding from a Tech Startup

10 Tips on Reward Crowdfunding from a Tech Startup

Hribarcain is a newly founded UK technology company that was launched on the crowdfunding platform Kickstarter in 2016. After starting in a small design studio in Bristol their first product launch was “Magno, The World’s First Magnetically Controlled Pencil.” They then developed a range of titanium pens and expanded internationally to provide products to thousands of customers worldwide, raising over £250,000 in revenue. As an SME marketing and crowdfunding specialist I was keen to meet the company founders at a recent networking event and hear more of their story.

Co-founders Ashley Hribar-Green and Matthew Aston Cain are British entrepreneurs with a wealth of experience in product design engineering. After working for one of the largest technology companies in the world (Dyson), Ashley and Matthew launched Hribarcain to pursue their dream of designing products that challenge convention as a result of ground breaking innovation. In this case it began with a range of magnetically controlled propelling pencils with a subsequent brand extension in to pens.

10 Tips on Reward Crowdfunding from a Tech Startup

Rewards crowdfunding allowed Hribarcain to promote their products direct to end-user buyers without first needing retail distribution agreements. They also used Indiegogo in 2018 for a campaign with US dollar pricing, whereas their Kickstarter campaigns have been priced in UK pounds.

Matthew already had previous experience from using reward crowdfunding on Kickstarter to generate orders for his range of Astoncain minimalist watches with top quality components and functions at a reasonable price. At a recent networking event in London organised by Masterclass Crowdfunding, he happily shared 10 top tips based on his seven years’ experience of using reward crowdfunding.

1.      Have a clear and concise video that runs under 2 minutes – it’s your business card. This is his advice after sometimes using longer running videos.

2.      Advertising – use some! Let people know you’re crowdfunding

3.      At the close of the project don’t simply just fulfill the reward item orders, up-sell to the buyers. In Magno’s experience it can add a further 15% sales income

4.      Make your pricing attractive, reduce it to create urgency within the limited time period of your crowdfunding project, maybe to 50% of RRP

5.      Possess a clearly defined USP (Unique Selling Proposition) to stand out from competitors

6.      Use quality photography in your crowdfunding project. It will help to enhance the image of your product or service and reassure people you’re serious about what you’re offering them

7.      Only use quality, reliable manufacturers who won’t cut corners and reduce the value of your items

8.      Price in a minimum 50% margin to allow for mistakes and to afford some marketing (see Point 2)

9.      Consider fulfillment delivery costs right at the start of selecting reward items and maybe opt for smaller, lighter ones, or at least smaller packaging to meet postal rate sizes

10.  Find other crowdfunding project owners who have complementary products, such as matching up pen makers and notebook suppliers, or maybe cooler boxes and food and drink providers, and agree to co-promote each other’s products to your respective networks.

10 Tips on Reward Crowdfunding from a Tech StartupAll of these are great pieces of advice, though there’s also a lot more to consider. If you are considering using reward crowdfunding yourself then please get in touch via [email protected] for us to meet, either in person in London or maybe on Skype, and discuss your ideas and how to effectively plan for success. You can also follow me on Twitter, @Cliveref.