By John Auckland, TribeFirst
Crowdfunding is a form of online fundraising widely used by early and growth-stage businesses. While not radically different from traditional fundraising, crowdfunding is buoyed by technology.
Equity campaigns, run on platforms such as Crowdcube or Seedrs, see entrepreneurs invite investors to buy shares in their businesses to support growth. Rewards campaigns, held on platforms like Kickstarter or Indiegogo, seek donations from backers of a project in return for rewards – early access to new or exclusive products, for example.
Since banks slowed their lending to SMEs, crowdfunding has become increasingly widespread. In fact, banks now fall behind crowdfunding as the best means of business funding among entrepreneurs, according to EY’s 2018 Fast Growth Tracker.
If you’re thinking of launching a crowdfunding campaign for your SME, here are the key steps you should take to prepare.
Rally your backersMost successful campaigners find key investors to commit a large proportion of their initial funding target long before the campaign has begun. This is also a great way to test the backing of your idea. You should aim to bring around half of your existing network onboard, or you might struggle during your campaign.
Many businesses running rewards campaigns tend to seek retailers looking to buy a bulk order of products, on which they’ll be able to get a significant discount, often ahead of the competition.
Crowdfunders should seek initial support from their friends, family, business contacts and wider network both ahead of their campaign, and during it. Those looking to run an equity campaign should also make use of LinkedIn to reach potential investors, and Angel Investment Network or UKBAA to find angels to back their investment round.
Many would-be crowdfunders expect that their campaign will require the most attention once it’s live. However, during Crowdboost, the crowdfunding accelerator I run for Virgin StartUp, we spend only one week talking about running the campaign itself – the other six are used to prepare pitch materials.
Get your pitch materials readyAt the very least, you’ll need:
● A pitch page with text and high-quality images
● A pitch video
● A marketing plan with various assets
● A press release with a distribution list
● For equity campaigns, a financial forecast, business plan and one-page exec summary
Make sure all of these materials look professional, engaging, and give potential backers/investors everything they need to know. At the same time, they should be snappy and concise rather than a barrage of dry text. Likewise, your pitch video should never exceed two and a half minutes.
Think carefully about timingRegardless of the type of campaign you’re running, timing can be the difference between success and failure. Kick it off before you’ve developed a strong enough business case or a compelling idea and you might not gain the support of backers or investors. Leave it too late and there may no longer be a reason to crowdfund.
Unfortunately, there’s no hard and fast rule for any one campaign. I’d suggest keeping your product development costs as low as possible, so that all your fundraising goes towards actually producing products.
For equity campaigns, your company valuation is key. Many fledgling companies have ended up giving away too much equity due to crowdfunding prematurely. After all, it’s far easier to justify your valuation with sales figures rather than forecasts alone.
Many companies set their valuations too high (or sometimes too low) – probably the biggest cause of crowdfunding failure. So think about your valuation carefully and launch your campaign accordingly.
Don’t lose momentumCrowdfunding can be a hard slog. Preparation takes several weeks and many campaigners are already quite drained by launch day! But this is no time to lose traction.
To ensure success, you’ll need to stay alert on your campaign page, answering the questions of interested backers/investors, and speaking to as many journalists as possible as a result of your PR campaign (I’d really recommend a PR professional to assist with this one). Meanwhile, both you and your team should be active on social media, promoting the campaign and nudging your networks for support.
Finally, it’s crucial to keep the faith keep your team motivated. Every effort you put into your campaign can help you sell another batch of products, or bring another investor or backer on board.