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How to raise cash from the crowd
You need to raise some equity finance for your business and crowdfunding seems like a great idea. How are you going to get your campaign going and create a winning pitch?
Is it right for you?
Crowdfunding is best suited to businesses that sell to consumers and are readily understandable by investors – but many Business to Business (B2B) start-ups have also been successful in raising money. “Our crowd are sophisticated but they are not sector experts,” says Jeff Lynn, chief executive of Seedrs. “It must be a business with a growth focus – these are risky investments so you need the possibility of high returns in the long term.”
Find a crowdfunding platform that offers a strong community of investors and suitable shareholding structures. Be prepared for due diligence and to back up what you say. Luke Lang, co-founder of Crowdcube, says: “Our filtering is stringent. For every business pitch Crowdcube supports, seven or eight don’t make it.”
Budget for success
On most platforms your offer must be 100% subscribed or you don’t get a penny. “Set an achievable target based on a realistic business plan,” says Lang. “Better to be oversubscribed than undersubscribed.”
Kick-start your campaign
Before you go live, line up your supporters. “Momentum is key,” says Lynn. “Nobody wants to eat in an empty restaurant and if people see you can’t get friends and family to invest, it doesn’t inspire confidence.”
Personalise your pitch
Tell it as a story and place video at its centre. “Campaigns succeed both because they propose products that people want but also because they appeal to people’s passions and interests,” says innovation agency Nesta. “So make sure you tell the story of why you are passionate about making your project a reality.”
Consider offering discounts or other incentives to keep investors engaged. But never confuse this with the financial return.
Embrace the crowd
Your backers can help you by testing new ideas and products or even supplying specific expertise. “At its best there is a sense that you are co-creating the business and that could be what gives you the edge,” says Lang.
“We would like you to invest in this exciting business and become involved in its success.”
“We couldn’t find anyone else so we’re asking you.”