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Alternative Finance blog


How to equity crowdfund

17/08/2015 | 0 comments


How to equity crowdfund

How to Equity Crowdfund.

 

So what is equity crowdfunding? It’s a way of raising funds by selling shares in much the same way the London Stock exchange works or AIM. Thousands of people (The Crowd) could buy shares from as little as £10 to finance an early stage company through an equity crowdfunding website.

 

Firstly let me just say that Equity crowdfunding is not the easy option - a loan is often far more achievable. At Businessagent.com we receive lots of enquires from entrepreneurs thinking they can do a quick video, put a random valuation on a business and pocket £250k to start their business in weeks. This is very rarely the case. On average it will take a minimum of 3 months but to be safe allow 6. If you need the money sooner rethink your funding plan.

 

Equity crowdfunding provides a route to finance when the traditional avenues have been exhausted, are limited or don’t appeal to the entrepreneur. It may also allow the entrepreneur to raise more funds than a bank may be prepared to lend, although this cannot be guaranteed as the crowd choose who to invest in after all.

 

The advantages are:

As an entrepreneur it is cash that does not require a repayment plan.

You may be able to raise more than a bank is prepared to lend.

You can get support from investors.

You may not need two years accounts which makes equity Crowdfunding a more suitable option for start-ups

Equity Crowdfunding educates and prepares you for future funding rounds

 

The disadvantages are:

You have investors that you will need to report to.

Your investors can sometimes dictate the direction of your business.

It can take several months to raise the money.

Your campaign may not be successful.

You need shareholders agreements.

 

So why does it take so long to raise the funds?

It can take 3 months just to get the business plan ready then 3 months worth of pitching.

You need a plan which includes the following:

 

A 1 page investor memorandum - this is a short sharp pitch which defines the problem, the solution, how much you are looking for and what the anticipated return will be. It is the interest arouser and what will help an entrepreneur get through “the door”.

 

A clear Vision and Mission that is full of context about what you're going to become and who you are. For example Business Agents vision and mission is that we are creating the alternative finance marketplace. We help businesses get the funding they need and

help Investors make more money. Everything we do fulfils that vision and mission.

 

A 10 page slide deck for presentations and a very well researched business plan which will include.

 

A description of the business model

Market Size

Team Overview

A competitor analysis

A S.W.O.T analysis of every product you have (Strengths, Weaknesses, Opportunities, Threats)A marketing plan

A projected cash flow

A projected profit and loss

Your exit strategy

 

You will also need a professional video about the business.

 

All the above requires detailed research as each investor will stress test it in their own way. In my experience this a minimum of 3 months work and can cost thousands.

 

After this, you are investment ready. You have a detailed plan, a video and you're ready to pitch to the Crowdfunding site. Yes, you even have to pitch them! 19 out of 20 pitches are rejected. We were declined on three separate occasions. An equity Crowdfunding site lives from its reputation and is recommending you to their investors so do not be surprised if you get turned down. There could be a number of reasons for decline including: they feel they don't have the right investors for your business or they have tried your business model before and it was not popular, to they have three similar businesses on the platform or they just don't like it.

 

Once approved this is when the work really begins. Get your lead investors on board in advance, nobody likes being the first to invest and I have seen perfectly good businesses go by the wayside because they had no lead investors. Ideally you want at least 30% of your funds secured before you go on the platform. Not many crowdfunding sites will advertise that as they need you to believe they will secure the funds for you. The platform facilitates the process of taking the money but it’s also up to you to help deliver the traffic to make your pitch successful. That means you need a marketing plan for your investment.

 

Tell everyone, Mum, Dad and the world. Create an email database, post on Facebook, Twitter, YouTube and every social network you can find, blog and speak to the newspapers. Also attend every Angel club you can. This will start the ball rolling and once you hit 60% of your fund the crowd will start to follow.

 

Equity Crowdfunding helps entrepreneurs navigate the equities market and provides a stepping soon to future financing.Businessagent.com runs a discover crowdfunding course and a 6 week incubator program to get you investment ready. Email info@businessagent.com if you want to know more or go to our Raise Finance page if you require a loan or are investment ready for equity Crowdfunding -https://businessagent.com/raisingfinance

Watch our you tube video if you would like to learn more on what is equity Crowdfunding.

Go to Nesta to find out  more about alternative finance http://www.nesta.org.uk/ 



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