Crowdfunding has become very fashionable as a way of providing financing for small companies. The Crowd on sites such as Crowdcube can be a slightly more forgiving audience than Banks or even Angels. The Crowd will support the right kind of venture even it is pre-revenue, and whilst Crowdfunding sites increasingly demand rigorous information from companies seeking funding, the demands may still be considered less demanding than full due diligence from professional investors or the kind of performance ratios demanded by Banks. The Crowd may also support slightly higher valuations than the valuations demanded by professional investors looking to prise a bargain out of the company raising money. They also provide the potential to raise more than originally requested, since Crowdsourcing sites may permit over-raising if a company’s offering proves very popular with investors.
Of course it is not all plain sailing with Crowdfunding – you still have to give equity away to raise funding (unlike with a Bank), and there is no guarantee that the Crowd will be interested in supporting your company.
So are there any key lessons which can be learned that could enhance a company’s chance of raising finance through crowd-sourced routes?
One important aspect no doubt is that the company’s message is simple and populist enough to appeal to the Crowd. If the company’s product or service is too abstract, or technically complicated then the Crowd may pass over their offering and plump for something that is easy to grasp and resonates with ordinary people.
A second aspect is that it’s important to have raised some capital in the round before going on the Crowdfunding site. If this is reflected in the amount of the raise shown on the Crowdfunding site then it helps persuade Crowd investors to come on board. For example if a company is raising £100k and has already raised £25k elsewhere before it starts on the Crowd-sourcing site, then its target may show on the Crowd funding site as 25% fulfilled already. This can make the Crowd feel like the raise has some momentum.
It’s important to respond to queries on any Crowd platform forum quickly and honestly. Potential investors may attach great importance to the answers to these questions (and great significance to any questions which rain unanswered).
It’s also useful to keep the Crowd updated with regular bulletins during the raise about the progress of the business. Any good news can help provide reassurance to investors who are hesitating before investing.
So these are some useful tips for success on Crowd sourcing investment sites- follow these rules and it may help your company stand out from the Crowd.
Clive Rich- Chairman of LawBite (two successful raises on Crowdcube).