For some time the we have championed the use of crowdfunding and angel investment platforms. They continue to provide businesses with a stage to present their investment opportunity and the administrative systems to accept investment in an orderly manner. This has been achieved by the use of new technology and design of efficient business processes.
It’s important to remember that a crowdfunding raise or listing on an angel platform is the same as a traditional approach to the market by a business looking for investment. These are the key questions that a business owner needs to consider before starting a raise:
These fundamental questions are common across all sectors and business types but the answers will have different levels of importance, depending on the equity fund raising strategy.
What crowdfunding or the use of angel investment does is put a lot of these questions first. Unlike a traditional raise when the due diligence is carried out by individual investors before and after funds have been committed, the platform carries it out before they accept a firm onto the platform. This can put a lot of pressure on the business and takes considerable time, but the result is that funds committed come through to the business a lot faster if the campaign is successful. This due diligence helps separate out the firms that are investment ready and those which are not. It’s worth noting that a business rarely gets a second chance to approach a platform, so it’s important to be investment ready before your first approach.
Another common characteristic of an equity raise is that there are existing share holders to consider and consult with, a lead investor often representing the crowd and new investors. While planning is very important the position of these people or entities is often fluid with historical commitments being met or not, new pledges being kept or not and unexpected options being presented to the business. The business therefore needs the stability, leadership and resources to cope effectively. Resources are important as it’s difficult for a business to make these decisions if they are fighting to keep the lights on.
The importance of a lead investor cannot be underestimated when approaching a crowdfunding or angle platform. They will expect at least 40% of the raise to be accounted for before the digital campaign begins.
Planning and support is crucial. A good accountant and lawyer can help ensure the practical considerations are taken care of and they can be available to answer questions. An experienced and engaged board of directors is also essential to provide support and encouragement.
We can provide support with planning and implementation of a raise using a crowdfunding or angel platform, so please get in touch with us to discuss your needs. Speak to us, we are happy to help.
As the leading crowdfunding platforms grow to a new level of maturity, businesses increasingly view this as a way of raising investment. They also appreciate the opportunity to use crowdfunding to raise the businesses’ profile, attract customers, professional partners and prepare for future fund raising rounds. The challenge is to get listed on a platform but there is some clear clarity of what they are looking for and what they expect from a business who wants to list. It’s also clear what a company has to do to get ready.
1. Strong Corporate Governance
If you want to list on an equity crowdfunding platform or approach any investors they will expect you to have a strong management team in place, good corporate administration (all companies house and tax filings up to date) and a clear understanding of your financial position. Existing shareholders and directors have to understand their current holdings and the impact of a valuation and issuing of new shares. It also essential to have SEIS or EIS HMRC approval in place.
2. A Business with a clear proposition.
The platform will want to know clearly what problem your business solves and how you solve it and which sectors you operate in. Platforms are keen to support products or services they understand and that fit into sectors they have had previous success in. Lifestyle and B2C business have done very well on some platforms because the crowd can easily buy into the business. If the sector is more niche specialist platforms and angel networks should be approached.
3. A Proven Business.
It is increasingly rare to find a prerevenue business listed on an equity crowdfunding platform. They generally want to see a product or a service that has attracted paying customers or in some cases a large number of onboarded users. This provides validation of the proposition and champions who can praise and promote the fund raise. The exception to this rule is an experienced management team and a clear launch revenue stream.
4. A clear exit strategy
It is important to have a clear exit strategy planned so investors can see when their return is likely to come. It is also recommended to offer investor rewards such as free samples of product, early releases of products, opportunities to visit or meet businesses.
5. Early money
Platforms often expect a lead investor or committed funds to start a campaign. It has been suggested that the business finds the first 30% of the raise, the platforms network brings 30% and the final 30% comes from new investors.
6. Committed management team
A business needs to dedicate 10 weeks to a campaign. This is 6 weeks preparation and 4 weeks live promotion. They need to develop a strong promotional campaign and management have to be available to follow up on enquiries, discussion forums and social media activity. If the expertise is not available inhouse, resources should be made available to bring in third party support. The commitment will have to be made clear to a platform as they want the raise to be successful.
7. Strong promotional strategy lined up.
The platform will support the preparation of promotional campaign but they will expect you to prepare a video that introduces the businesses, the team and the opportunity. The more engaging the video the wider it will be shared and impact it will have. The easiest way to share this message is through social media and twitter, facebook (if B2C), linkedin (if B2B), slideshare and youtube. Resource should be made available to respond to any engagement from these sources. A businesses’ own website should been professionally prepared and be fully up to date with company, people and product/service information as this will be the closest some investors will get to the business. Links should be on everything back to the platform to make sure investors can easily access the investment opportunity. The platform will advise on FCA requirements regarding the promotion of investments. It is crucial a business accepts and follows these rules.
8. Take advise
We have worked with many platforms and have a clear understanding of what they expect and the processes to become listed. We can also advise of other routes to funding and strategies to get there. Get in touch to find out how.