Investment

Tips for raising money through equity crowdfunding

21 Mar, 2017

Did you attend one of Tech North’s recent crowdfunding roadshows in Liverpool, Manchester, Wakefield and Newcastle? If so, you will have heard about how equity crowdfunding has given British businesses a new way of thinking about finance thanks to platforms like Seedrs and SyndicateRoom.

Henrik Ottosson, a Senior Advisor with equity crowdfunding service Invesdor was also on-hand to share his top tips for preparing (and eventually embarking on) a funding round – from appealing to potential investors with an eye-catching video to securing SEIS (Seed Enterprise Investment Scheme) approval. Invesdor is the largest platform of its type in the Nordics and last year expanded into the UK market.

How can an entrepreneur prepare to raise finance through crowdfunding?

The first step is to get the legal documents in order. Then, if you’re a UK business, complete your SEIS and EIS (Enterprise Investment Scheme) applications. SEIS enables investors to get about half of their investment back from the government and is there to support really early seed-stage businesses.

Also start engaging with your network and try to sound out lead investors. It’s very important to have a lead investor in the round, as the first question that you’ll get on most crowdfunding platforms is who’s going to invest with you. Getting a lead investor is one of the biggest hurdles to overcome, so it’s important to start thinking about it early.

What advice can you give on selecting a crowdfunding platform?

Speak to different crowdfunding platforms and read up on them. First, we usually ask where your network is and where you want it to be, as it’s important to understand where you would like to get your investors from. Some businesses have a very international network. At Invesdor we cater for cross-border investments and have investors from 70 countries, whereas others are local.

How does an entrepreneur decide how much money to raise?

That comes down to a financial plan. We can define a range, with a minimum and a maximum amount. However, if you’re asking for a very wide range, an investor is likely to ask if you’ve done your financial planning. They will understand that you probably need to do multiple funding rounds, so be clear about when you need the money and when the next round will happen. You might want to do a small raise and come back in six-to-nine months for a second raise once you’ve navigated some hurdles.

Why is it important for a business to have a polished crowdfunding video?

A video can almost act as an appetiser to a businesses. For an investor, if they are meeting the entrepreneur online, they need to get to know them and see what they do. After seeing a video, they’re then more likely to check out their pitch.

What are some common crowdfunding mistakes to avoid?

Failure can occur when an entrepreneur doesn’t promote their campaign in their own network. We always tell them at the start that they shouldn’t be dependent on the platform, as it might end up in disappointment. Entrepreneurs should try to be in control of the fundraising process as much as possible.

What timeframe should a business expect to achieve their crowdfunding goal in?

Entrepreneurs have day jobs, so we don’t want to make campaigns too long. Four-to-six weeks is a good window, one that typically involves entrepreneurs spending two of them going out to get a lead investor onboard. However, we’re flexible and can give entrepreneurs more time. Whether they take six or 20 weeks, it doesn’t really matter – we know that they’re going to be the busiest at the beginning and the end of the funding round.

What happens if the entrepreneur eventually wants to eventually exit?

We support four stages in crowdfunding – the seed stage, early growth, and pre- and post-IPO. When you start to grow and develop an exit plan, you might want to list, which we can do on the platform. The first thing we usually do is open up a pre-IPO round which is there to get some working capital and prepare for a listing. After that we open up and do the IPO on the platform.

Are there any similarities between the crowdfunding ecosystems in the North of England and the Nordics?

Leeds is a bigger city than most of our capitals, but the ecosystems are actually very similar. In every region of the Nordics we see local expertise, which is very true in the North. There may be a university city and a big industry company in any given region, accompanied by tech clusters.

In Finland we have successful gaming companies like Rovio, and in Sweden we have music tech companies like Spotify. We have a cluster of entrepreneurs in every city, so it’s important for the region to market that expertise and make people aware of it – so yes, there are similarities with the North of England.

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