Revolut, THIS, Ziglu and Oddbox — what do all these brands have in common? They’ve all used equity crowdfunding to raise capital.
Crowdfunding has become a key part of many high-growth brand’s strategies – and not just as a way to raise cash. There are marketing benefits too. It’s a great way to build awareness and a community of brand advocates — more on that later!
But what is crowdfunding, how does it work and what are the benefits? If you’re considering crowdfunding for your business, here’s what you need to know.
What is equity crowdfunding?
Equity crowdfunding lets people invest in unlisted companies. In other words, a company not currently listed on a public stock market. In exchange for their investment, investors get shares (equity) and become part owners of the business. Crowdfunding is popular among earlier-stage businesses with high growth potential. This brings both potential upside should the business do well, and also risk should the company fail to grow or fail altogether.
There are a number of platforms, including Seedrs, that have created marketplaces for businesses and investors to connect and seek crowdfunding.
What types of businesses can crowdfund?
Businesses of all sizes — and industries — can consider crowdfunding. You might be concerned that your business is too small to attract investment, but for smaller high-growth businesses, there can be some great tax incentives for prospective investors. In the UK, government schemes like SEIS and EIS have been developed to incentivise investment in early-stage businesses with tax and capital gains benefits for the investor.
There are some things you should consider when weighing up whether crowdfunding is right for your business. A strong business plan, growth story and team will all be important to prospective investors, as will your business performance to date. Spend some time working on the above, or speak to one of the crowdfunding platforms to gather intel and get feedback on your business.
What are the benefits of crowdfunding vs traditional VC investment?
Crowdfunding is a great way to raise money from many people, rather than a few VCs. In a tough economic climate, it opens up a new audience of potential investors for your business and saves on endless pitches and meetings with VCs. That’s not to say that VC investment isn’t also useful, and having a VC firm on your cap table has its own unique advantages.
There are also some great upsides to a crowdfunding campaign for businesses, particularly when it comes to building awareness and community around your brand. By including everyday investors in your funding round, you’re building a community of brand advocates — and likely new customers too.
On top of the halo effect for your brand, the process of crowdfunding helps you educate a broad audience about your offering. This can attract sophisticated investors, VCs, and even talent who may be interested in joining your team.
How does a crowdfunding campaign work with Seedrs?
Seedrs has made it simple for businesses to crowdfund, allowing you to take advantage of its existing community of engaged investors. Seedrs’ platform helps you market your campaign, and collates all the investments into a single line on your cap table under a nominee system. It’s VC-friendly too, meaning it can work alongside your existing investors.
A typical crowdfunding campaign can be split into three sections; pre-launch, launch, and close. Seedrs recommends you allow three months for a crowdfunding campaign – here’s what you can expect:
This is where your campaign begins. You’ll work with a dedicated investment associate to look at your business structure, forward-looking plan and run through some due diligence. It’s also a great time to scope out investment interest with your existing network, customers and community.
The launch can be split into two stages, private and public. A private launch is a great way to give early access to existing investors and your community to give your campaign that all important kick-start.
With momentum strong, you can now launch publicly. Having a strong marketing plan is key to a successful campaign. That will include:
A pitch deck – with key insights and info on the business
A business overview and plan – the in-depth details on business performance that investors will want know all about
A video – a video is a great way for potential investors to learn more about the business, your team and the crowdfunding process (and it’s fun to create, too!)
As your campaign comes to an end, it’s a great time to re-engage those who’ve already invested and send reminders to those that have shown an interest but may not have committed yet. A bit of urgency can go a long way!
Once closed, Seedrs will guide you through the legals and formalities to bring the campaign to a close. You can typically expect your funds within 2-4 weeks!
Want to learn more about crowdfunding for your business? Learn more about raising funds on Seedrs in this quick ECF 101 video.
How quickly do investors expect a return via crowdfunding?
As with any investment in a young business, any return on the investment may have a longer horizon and will require an exit event; for instance if the business were to be acquired or list on the stock market via IPO. The Seedrs platform has a secondary marketplace, allowing investors to buy and sell shares in private companies, including those that have raised via crowdfunding.
As with any investment, your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.
In paid partnership with Seedrs.
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