Raising funding is one of the most important steps in the evolution of any business. Before embarking on the journey of equity crowdfunding, it is important to understand the process, what is means and what you should look out for.
Equity Crowdfunding is a form of funding that allows start-ups and other small to medium-sized companies to raise funds through an online intermediary from a large number of investors. An eligible company can raise up to $5 million per year via a licenced Crowdfunding platform, and each retail investor can invest up to $10,000 a year in your company in exchange for securities in the form of shares. This type of funding has the potential to help take your business to the next level.
Raising equity for your business is a time consuming and often difficult process, and can takes months of planning and preparation. It also means you will be accountable to new shareholders in your business. You need to be confident that you and your business are ready for the increased work load and ongoing obligations that this entails.
Investors will also want to be sure that you have the talent to drive the business to the next level and to be worthy of their investment and trust. It is also important that you have taken your business as far as you can prior to undertaking a funding round. So, if your business is no more than an idea, it’s probably best that you try to reach and exceed as many milestones as you can with it before you look to raise investment.
The next important question is whether your business will generate interest from the OnMarket Crowd. The best way to test your campaign is to run it by our friends, family or extended network. Give them your best 5-minute pitch. Do they believe in your business? Would they be willing to invest $500 (or more) in you? This process will help you refine your business case and prepare you for the types of questions investors will ask.
Most importantly your extended network will be very important in building the initial momentum in your raise. Start spreading the word, and get the network effect to do the hard work for you.
Before raising capital, you should have a strong and clear idea of the direction your business is headed. We don’t expect you to have a plan for every conceivable thing your company may do over the next few years but you should have a well thought out and if possible, documented plan for the future. If you are considering raising capital through equity crowdfunding, it is a good idea to have a long-term plan for the use of those funds. Investors will want to know what you plan to do with your raise and how their investment will help you achieve this.
Before embarking on an Equity Crowdfunding Campaign, it is important you have a view on what your business is worth. The value of your business will be heavily dependent on the stage it is at, the industry it is in and the people it has driving it. Have a look around at the value of similar businesses in Australia and overseas, and most importantly, think about how much money you will need to reach your next target and how much equity you are willing to give away.
Businesses from seed or start up through to IPO are all welcome to apply to raise capital through OnMarket. There are however, certain regulatory requirements that will determine if your company is eligible to equity crowdfund. Your company must: