How can a startup make itself fit for crowdfunding? Here's what the experts have to say
The rise of crowdfunding in recent years has been nothing short of staggering. With the banks still seen as public enemy number one by many start-ups, new forms of fundraising are jumping into the breach with crowdfunding close to the top of the pile. However, despite its ability to help start-ups raise money fast, entrepreneurs shouldn’t treat crowdfunding as a guarantor of capital. Their business still needs to tick all of the necessary boxes. With a little help from the experts, here are some useful tips for getting the crowd on board with your big idea.
Perfect your pitch
Given that many members of the ‘crowd’ aren’t going to be seasoned business investors, keeping things simple will put you in a strong position to reach that funding target. And nowhere is this more important than in your pitch. “You need to make your pitch stand out from the rest,” says Luke Lang, co-founder of Crowdcube, the equity crowdfunding platform. “It has to be compelling. This doesn’t mean writing lots of flowery words; it should be clear and simple, with no jargon, because potential investors need to understand quickly and easily what and who they’ll be investing in.”
These thoughts are echoed by Corrado Accardi, co-founder of Pizza Rossa, a pizza start-up that has just surpassed its crowdfunding target. “The pitch video is just as important as the numbers in the business plan,” he says. “My advice would be not to exceed two minutes and if you can, tell your message in less than 90 seconds. A message that is direct, clear, concise and straight to the point can give your proposition much more credibility.”
Don’t ask for too much
Whilst it may seem a far cry from standing in front of a panel of VCs or angel investors, going down the crowdfunding route doesn’t lessen the need for a fool-proof business plan. “To convince investors that your idea has market potential, you’ll need a well-written business plan with financial forecasts that add up,” says Lang. The same is true of the magic figure that you post on a crowdfunding website: the investment target. This will also serve as a marker of an entrepreneur’s credibility in the eyes of the crowd. “Don’t be over-ambitious with the investment target you set because people will see you as unrealistic and a risky prospect, and you’ll probably fail to achieve it,” adds Lang. “And don’t put investors off by overvaluing your business, either. It’s worth remembering the negative reactions that inflated valuations get on Dragons’ Den.”
Promote your campaign
It would be naive to think that sticking your business idea and pitch video on a crowdfunding site is all that’s required. Only by promoting your campaign far and wide can you hope to raise the funds you need to get your enterprise off the ground. “Turning customers into loyal investors is the new frontier of crowdfunding and requires a more marketing led approach to fundraising,” says Carlos Silva, chief operating officer at Seedrs, the crowdfunding platform. “The crowd isn’t an amorphous, anonymous blob on the internet. It’s made up of people with webs of influence, relationships and connections based on shared interests. You need to fish where the fish are.”
As Silva goes on to explain, there’s isn’t much difference in terms of the sorts of marketing activity required. “The art of promoting a crowdfunding campaign is really just the art of promoting the company itself. It requires all the same planning, discipline and execution as a great IPO, restaurant opening or product launch.”
Engage with investors
As crowdfunding has woven its way into the public consciousness, people have been calling out for brands that they can connect with on a more personal level. Taking this trend into account can significantly boost a crowdfunding campaign’s chances of success. “The way that companies raise capital online has evolved from being simply a source of cash into a great chance to raise the profile of a company and to deepen its engagement with their customers,” says Silva.
Lang believes regular engagement with potential investors is essential. “Ultimately, the success of your pitch will come down to how well you can engage with the people who will become your investors,” he says. “They’re interested in crowdfunding because they want to invest in businesses that excite them, that they have a closer relationship with and where there’s the possibility of a more active involvement in the business than they’d get by going down other routes. You need to keep your investors and the people following your pitch abreast of developments by publishing regular updates. This can be a hugely powerful way of converting interest into investment.”
Give a little extra
Whilst a share of the profits is incentive enough for some investors, others may wish for further rewards from their investment or fund-giving. Offering additional benefits can certainly help swing a crowdfunding campaign in an entrepreneur’s favour. “By pledging on a crowdfunding campaign, supporters are buying into your business and so will want to feel a part of what is being created,” says Graeme Roy, head of marketing at Crowdfunder. “Great rewards will provide the crowd with unique experiences, products or great value for money opportunities – giving everyone a great reason to pledge and support the campaign. The business may also offer great community benefits or a service that the crowd believes in, creating a lasting legacy for their community or social good.”
Roy cites Snact – a social enterprise that converts food waste into fruit ‘jerky’ – as a solid example of this. “Snact got it right when it offered great rewards at the same time as being on a mission to change the world with its idea: tackling food waste,” he says. “That was an important issue for its supporters and delivered real social impact.”