Crowdfunding provides startup, early and growth-stage businesses with a flexible and convenient way of raising finance. It bypasses traditional – and often much tougher – routes to finance, and these businesses have a unique opportunity to pitch directly to a crowd of potential investors, who can then invest as little or as much as they like.
It sounds simple, and for the most part it is, and that’s why we continue to see a rise in the popularity of crowdfunding. Despite its relative infancy, it is now recognised as a mainstream funding option and, far from being a last resort, it is fast becoming the first choice funding option for businesses.
However, around 50 per cent of crowdfunding pitches do not reach their target, so for business owners considering this route, they need consider how they can maximise the opportunity of pitching to a crowd of potential investors. At Crowdcube, we’ve seen pitches that are good, bad and indifferent, with around 85 per cent of those not meeting our stringent due diligence process to make it onto the platform.
The key thing to remember is that when pitching for investment, business owners need to think clearly and sensibly, as they would with any other important decision about their company. Ensure you have a clear proposition, which outlines the market potential, what makes it different or unique and, most importantly, why someone would want to invest.
People are more likely to invest in a business if it’s something they are already passionate about, or find interesting or compelling. We have seen crowdfunding campaigns fail before on this point, simply because they fail to inspire potential investors. Don’t forget that you’re asking people to part with their hard-earned cash and they have to believe in what they are investing in. Investors also want to know about the people behind the business, so don’t be afraid to shout about your credentials, history and expertise – and the team behind you.
It’s interesting to see what happens when companies don’t promote well. As we’ve said, pitches do fail and often this is down to a lack of marketing, whether that’s PR, developing creative pitch materials, professional video content and so on. Marketing is one of the most important parts of a crowdfunding campaign and could be the difference between success and failure.
Every pitch on Crowdcube must go through a thorough due diligence process, and this means providing detailed business plans and financial forecasts. The pitch must be clear and not misleading in any way. We ask people not to be over-ambitious with their targets or to put people off by overvaluing the business. Plus, remember to ask investors only for what you need as well as a sensible contingency, why you need it and how the money will be spent.
Finally, outline the company’s strategy for growth and show that the business is scalable. Of course, any investor wants to know about the potential return on their investment, so it’s critical that a business can outline how and when this could happen. Unfortunately not all companies are able to articulate this well.
We’ve certainly seen our fair share of crazy ideas and approaches and many simply don’t make it onto the platform after this rigorous due diligence process. Based on our experience over the past few years and seeing businesses succeed – and fail – here are five pearls of wisdom for those considering crowdfunding as a route to investment.
(1) Get investment ready
Before pitching for investment get your paperwork in order. Ensure you have a detailed business plan and financial forecasts readily available so investors can evaluate your business and make a fully informed decision about investing. The government offers attractive tax relief schemes of up to 50 per cent, such as the Enterprise Investment Scheme (EIS) and The Seed Enterprise Investment Scheme (SEIS), for small business investors. It’s an important factor for crowd investors so find out from the HMRC if your business is eligible.
(2) Create a killer pitch
When it comes to writing a pitch, it is a case of quality over quantity. So start with a crystal clear proposition, which concisely outlines what makes your business unique, the potential market opportunity and what the strategy for growth is. Whilst investors will also want to know when and how they could see a return, many want to be part of a business’s story, so don’t forget to tell investors what the investment could help you achieve.
(3) Engage your own crowd
Businesses which already have a network of existing customers and suppliers are at an advantage, so engage your existing community and offer them the opportunity to invest. Reaching the first 10 per cent of an investment target is the hardest part, so companies that are able to leverage existing networks to raise investment and get early momentum are more likely to succeed.
(4) Promote your pitch with passion
The most successful crowdfunding campaigns are those that have been supported by proactive promotional activity. Businesses will need to make an investment of effort and time, as most promotional activity can be done at a relatively low cost. For example, inviting potential investors along to one of your locations to meet the team, in-store promotions such as posters, beer mats and employee t-shirts and emails to existing customers.
(5) Maintain investor relationships
Once you’ve reached your investment target be sure to maintain a relationship with investors by keeping them up to date on how the business is progressing. Not only are they investors, but they are potential customers, brand advocates, business contacts and even potential suppliers or partners – so it’s important to keep them happy and engaged.
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