Notes from "How to Raise Investment via Equity Crowdfunding"
[Note from Rob: This is part-guest post from Donna and part my notes on crowdfunding. Please use the comments to ask any additional questions that you didn’t get answered at the event.]
What is Crowdcube?
Crowdcube is an online platform for crowdsourcing investment. It’s much more than just a website though – the Crowdcube team also provides access to high net worth and sophisticated investors and rather handily, being FCA authorised, is a legal pathway to obtain crowdsourced funding. As a foreigner, I wasn’t aware that the rules here prohibit owners from directly soliciting crowdsourced investment.
Luke and Darren co-founded the company with the idea of democratising investment in start-ups. Anybody can invest on Crowdcube, and some companies accept investments as small as 10 quid! Crowdcube has raised £26m in funding to date, including helping Escape the City to raise £600,000. Momentum is building, with over 40 businesses raising £10m just this year alone.
What are investors looking for?
- A great idea
- A clearly identified and addressable market
- A good team
In your presentation documents, three items to keep in mind:
- Attention to detail – make the pitch look good. This includes not using ClipArt as a logo
- Include three years of projections
- Include information on your current financial position
One last tip: early momentum is critical.
Potential investors are particularly drawn to businesses with a rapidly rising progress bar, so bring as much of your own crowd as you can at the beginning to have the best chance of raising your target.
If, like Escape the City, you find yourself with excess demand, there is also an overfunding option to raise more than your initial target by offering more equity.
[Note from Rob: Thanks very much for the review Donna!]
Escape the City’s experience on Crowdcube
In July 2012 Escape the City raised £600,000 from 395 of our own members on www.crowdcube.com. It’s important to note that we brought our crowd with us. Without your own crowd this is harder to pull off. Additionally, if you have an actual business (with a brand, revenue and customers) you’ll be more likely to succeed in your funding efforts.
There are currently two main plaforms in the UK – www.crowdcube.com and www.seedrs.com. Crowdfunding is in its infancy in the UK and the US. It is massively democratising the route to investment for lots of small businesses.
Apparently it is important to hit the magic 40% mark when crowdfunding. Darren Westlake, Crowdcube’s CEO, says that is a good target for momentum to carry you through to 100%. Social proof and all that. Can you create scarcity around your pitch? Request pledges before you launch in order to run a queue and waiting list? Again, this is tricky if you don’t have a massive crowd to bring with you.
Make sure you’ve got your Articles and FAQs really clear. In the UK EIS and SEIS are massive tax incentives for individual private investors. We sold B shares to our crowd investors – these have exactly the same rights as A shares but they don’t come with a vote at AGMs or EGMs.
You need to use a crowdfunding platform in the UK because it is illegal to offer investment to the public without being FCA authorised. There are two interesting examples of companies that have raised investment in the UK without using a crowdfunding site. Trampoline Systems asked investors to self-certify as ‘High Net Worth Individuals’ (you can read about it here). Brewdog got their investment prospectus approved by an FCA authorised accountancy firm (you can view the pitch here).
You can check out our Crowdcube page here: http://www.crowdcube.com/pg/case-study-escape-the-city-62
Finally, we’d encourage you to try and get moment with your business yourself first.
We spent almost three years bootstrapping before we raised external capital via equity crowdfunding. Try to only seek external funding when you have pushed your business as far as you can yourself or when you have a clear roadmap for what you’d do with extra cash.
[Note from Rob: I know we covered a wide range of topics at the event on Tuesday – please do just use the comments field below to make sure we can answer any remaining questions or follow up on additional thoughts.]
What is Escape the City all about then?
Frustrated by climbing the corporate ladder, we decided to build a community to help people build meaningful careers doing work that matters – to them and to the world. We help talented people find fulfilling work by making big career changes, building businesses, & going on big adventures. We’d love you to come with us on this journey.
How do you get involved?
1. Job Seeker? Create an Escape Profile to get matched to exciting jobs.
2. Aspiring Career Changer / Entrepreneur? If you’re in London, come and see us at The Escape School.