Investment

How equity crowdfunding can transform your business

6 Feb, 2017

Tech North is holding a series of equity crowdfunding roadshow events in Liverpool, ManchesterWakefield and Newcastle on the 8th and 9th of February 2017, where you can find out more about this way of raising finance for your business. Sign up now!

Equity crowdfunding has given British businesses a new way of thinking about finance. The ability to let the public contribute to your funding round, in return for a stake in your success, has created a new breed of investor. But not all equity crowdfunding platforms are alike. In fact, some would rather you didn’t call them equity crowdfunding platforms at all.

Seedrs is one of the longest established platforms of its kind. Since launching in 2012, it’s raised a total £190 million for 460 businesses. Beauhurst had the company pegged as the most active investor in UK private companies in Q3 2016. Unlike some other platforms, Seedrs itself becomes the investor in rounds on its platform, as a representative of the individuals who put money in.

While Seedrs started out helping pre-launch or early-stage startups get off the ground with rounds in the region of £150,000, it’s now seeing larger raises. For example, the company says WeSwap raised £2.7 million from 3,059 investors. As with traditional Kickstarter-style crowdfunding, some companies choose to raise money via Seedrs as part of a more traditional VC round. Perkbox‘s £4.3 million round was led by Draper Esprit.

As Draper Esprit’s chief executive Simon Cook wrote for CityAM recently: “Crowdfunding turns excited investors into powerful advocates, potential customers, and happy beta testers. Combined, VCs and the crowd offer entrepreneurs a potent platform to begin their business.”

Loving angels instead

Platforms like Seedrs and Crowdcube let any member of the public with an understanding of high-risk investment put money into companies. But others offer a way of connecting entrepreneurs with a more traditional class of investor – high net worth individuals acting as angel investors.

SyndicateRoom is three years old and span out of the University of Cambridge’s Judge Business School. To give you an idea of how it differs from Seedrs, it has raised more than £60 million from a mere 102 investors. There’s a £1,000 minimum entry point for any deal on the site, and investors need to meet strict criteria that define them as sophisticated enough to take part. What’s more, SyndicateRoom requires that companies raising money through the platform already have a lead investor lined up to put in at least 25 percent of the raise.

Oliver Hammond, an Investment Analyst with the company, says that while SyndicateRoom doesn’t limit the sectors it works with, B2B companies tend to be attracted to its platform. He says that campaigns on other platforms can create marketing buzz with consumers, but SyndicateRoom offers the equivalent for the B2B side. Some users of the platform are business owners who end up becoming valuable customers for the companies they invest in, not just shareholders.

Hammond names Lightpoint Medical, Warwick Audio and Recycling Technologies as SyndicateRoom success stories, but the platform isn’t just for tech companies. ‘Salty‘ stars Antonio Banderas and has become the first equity-crowdfunded Hollywood movie production. Hammond says that more will follow.

Breaking through barriers

Rules around equity-based investment vary from country to country, but Invesdor is a platform that aims to help European companies raise money from people all over the world. It launched in the Nordics five years ago, helping entrepreneurs raise investment across four currencies and four different legislative environments.

“Today,Invesdor is the largest equity crowdfunding platform in the Nordic region with over 50 percent market share,” says Henrik Ottosson, a Senior Advisor with the company. “In 2015, we scaled and became the first equity crowdfunding platform to be regulated across all of Europe.” Last year saw expansion into the UK.

A global approach to equity crowdfunding isn’t the only unusual thing about Invesdor. Last year it did something unusual: it was used to list an IPO on the Nasdaq in Helsinki. “We showed that crowdfunding platforms work well for listing companies because it is a quick and efficient distribution channel for equity offerings,” says Ottosson.

Tips for raising money on equity crowdfunding platforms

So what should you keep in mind if you’re thinking of listing your company on an equity crowdfunding site? Each of the companies we’ve listed here has a different offering, but there are a few things that Seedrs’ Senior Campaign Development Associate, Chris Rea says are key.

  • Don’t rush: Take six to eight weeks to plan, says Rea. Before launching, talk to people who’ve expressed interest in your business in the past. It helps if you can line up a few people to invest right at start of your campaign. This gives you early momentum. Pre-registration campaigns can be useful to build up demand.
  • Social media: Scheduling tweets and paid social media promotion can keep drawing new people to your campaign throughout its lifespan.
  • PR: Will the national media be interested in your story? The fact you’re raising money via crowdfunding isn’t a story anymore as it’s so common, but maybe there’s an angle that will make you attractive to journalists. Of the platforms we’ve talked to above, this makes most sense when you’re raising money through Seedrs, as a wide audience is able to invest small amounts in your company. Rea says the Seedrs team can give guidance on finding a good narrative hook to get the press interested in your campaign.
  • Make a good video: Your video should humanise your company and ‘sell’ the team. Get your team in front of the camera to show their passion. People want to invest in people they can believe in.
  • Make sure you have a solid investment deck: Some potential investors may want a deeper dive on the details of your business. Make sure you have them to hand in an easily digestible format.

What makes a good equity crowdfunding investor?

If you’re thinking about investing in an equity crowdfunding campaign, it’s important that you do it as part of a diversified portfolio. Investing in 10-20 businesses is a good number, Rea advises. “Only invest what you’re willing to lose – you may never see this money again. It could be between three and seven years until you potentially see a return. Also look at peer-to-peer lending and debt crowdfunding to help diversify your portfolio.”

Rea adds that you should be in the loop about the latest developments in the tech industry. Do your research in the sector, and understand how the deal you’re interested in fits into the wider market.

Our best investors are very involved and supportive,” adds Invesdor’s Ottosson. “They want to be involved in the business and act as brand ambassadors, spreading awareness of the company, asking retailers to take their products in stock or just connecting the company with valuable local networks. This way the investors are actively growing the value of their investment.”

If this article has whet your appetite to learn more about equity crowdfunding, come to our Equity Crowdfunding Roadshow events this week. They’re in Liverpool, ManchesterWakefield and Newcastle on the 8th and 9th of February 2017, You can find out more about this way of raising finance for your business. Sign up now!

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