23 March 2018 @ 1:00PM Equity Crowdfunding Issuers
So, you have an early-stage, innovative and growing small business that needs capital to grow and expand, but the bank doesn’t see your vision and the non-bank lenders are just too expensive. Does that mean it is the end of the road for raising much needed growth capital for your business? Not anymore. You can now equity crowdfund your business. This innovative type of funding has only recently been enabled for retail investors in Australia by the Crowd-sourced Funding Act 2017.
Businesses can now raise up to $5 million per year from all investors, who can invest up to $10,000 in each and every company that they like. As seen from the successful operation of equity crowdfunding overseas, this disruption to the way firms can raise capital is an exciting one. The extent of the funds raised globally by equity crowdfunding in 2015 was $2.56bn, helping thousands of innovating entrepreneurs to grow their businesses.
When it comes to equity crowdfunding, it’s no surprise that the crowd plays a fundamental role in your success. The old, but wise Proximo was right on the money when he told Maximus,
Win the crowd and you’ll win your freedom
It is the crowd that dictates whether you get a thumbs up or a thumbs down.
Here are some examples of how previous gladiators (companies) who have embarked down the equity crowdfunding path have won over the crowd and emerged victorious.
You need to market your team and their expertise effectively so the crowd has confidence in your company’s management. For investors, trust is very important. They need to see a management team that they can back. Don’t just focus on your product – yes, people are investing in your company’s story, your product and vision, but they are also investing in you – someone who they probably don’t know. You need to give them a reason to invest their hard earned cash in some stranger. What’s the best way to do this? On your offer panel, you need to have a compelling bio, a summary of your business model, financials, key milestones, use of funds, future plans and goals of the business, and above all, a knockout video that brings it all together.
Having an appealing video is possibly a make-or-break factor when it comes to equity crowdfunding. Kickstarter, a rewards-based crowdfunding platform, found that projects that have a video are 85% more likely to achieve their funding goal. People want to see a team that are passionate about their business. This comes across better in a video than words on a screen. Obduction, a real-time, first-person adventure game, raised US$1,321,306 through Kickstarter, who credited much of Obduction’s success to their video. It immediately showed investors the amazingly immersive feel the gameplay could offer, as well as the company’s management and their passion for the business.
One of your key target audiences of investors will be the millennial generation (20-38 year olds), they are highly active on social media – so you should be as well. According to a survey by U.S. Trust, millennials are likely to accept a lower return on a high-risk investment if it’s in a company that has a positive impact on society. In fact the Millennials Impact Investment Survey 2016 found that 76% of millennials describe themselves as impact investors seeking both financial and social return. You need to consider which social networks your potential investors are likely to use (Facebook, Twitter, LinkedIn, Instagram, Pinterest etc.) and tailor your message for each network. Social media is a powerful tool, it’s an efficient way of building a public face for your campaign, adding credibility and momentum. Ravean, a Utah based company that make heated down jackets and other heated products, raised US$1.33 million through a crowdfunding campaign. The founder, Bryce Fisher, used LookAlike Audiences, a Facebook advertising product that uses analytics to determine specific target audiences, and by doing so raised half a million dollars in 10 days.
Warm up your network of individuals interested in your company and start conversations with potential investors. This way, some of your campaign will already be funded once it goes live. Then, potential investors who are on the fence will have more confidence to invest in your campaign because it has already got off to a good start. The herd mentality will kick in and even more people will fund the campaign.
Many companies who successfully used equity crowdfunding outline this as a key factor. Clubhouse, a UK company that provides time-poor professionals with an alternative to busy coffee shops or co-working spaces, raised £864,847 and emphasise that “Nobody wants to write the first cheque, so you have to build momentum.”
With these weapons in play, you are now equipped to enter the equity crowdfunding landscape and win the crowd.
OnMarket makes investing and capital raising an efficient, simple and transparent process that is accessible to everyday investors and businesses making a change in the world. OnMarket enables equity crowdfunding, connecting investors with businesses that are making a change for the better. By investing in companies offering equity via OnMarket, everyday investors can share in the upside in businesses that ultimately will make a better, smarter, more sustainable world.
To read our comprehensive guidebooks showing you how to raise capital for your business go to www.onmarket.com.au