What I learned from my crowdfunding experience

Henry Catchpole broke the record for the quickest close on crowdfunding website Syndicate Room. Here, he discusses why he chose the funding route he did and what he learned along the way.

Inform Direct had been set up initially with the resources available to founding partners, but it became very clear quickly that there was a market for the product and that if we could develop it more, we’d attract lots of customers and it could be a real business success.

We needed investment and having followed several crowdfunding opportunities in the past I was very comfortable with how crowdfunding worked.

We decided to use Cambridge-based Syndicate Room which had recently raised funds for a number of technology businesses. They gave us confidence that they had a number of investors ready to back businesses like ours. The final decision to use them was probably swayed by the fact that they were local, although after the initial meeting all subsequence correspondence was carried out by email.

If you decide that the time is right to go down the crowdfunding route, it’s important to the success of your venture that you pick the right site.

The platform

No two platforms are the same. Your choice is going to be influenced by the amount you are looking to raise and the type of investor you are seeking. Consideration should also be given to the stage your business is at. Some platforms would suit mature businesses much more than others. Conversely some platforms are much more geared to start-ups that have not yet established a minimum viable proposition.

Only once you have identified some suitable platforms should fees come into the equation. Also, if you plan on encouraging a significant number of your contacts to invest in your business make sure this ‘tame’ money does not incur the same charges as third party money.

Importantly crowdfunding sites generally do not require much upfront cost to get your pitch live.  The bulk of the fees are only payable if you raise your minimum amount. This is a very appealing feature if you have been bootstrapping.

Consider too that if you are seeking to raise a substantial amount then you may prefer a site with a high average investment amount per investor.

This is because there is a cost to having a lot of shareholders with small stakes – although paradoxically this cost can be reduced by using Inform Direct. So, if the average investment amount per investor that a platform typically generates is quite modest then be alive to the number of shareholders you could end up with in order to raise the amount you require.

The pitch

I believe the key to a good pitch is being able to explain clearly and succinctly what your business does and what need it meets – the so called ‘elevator pitch’. Only when a potential investor understands this will they have a hook to hang on all the rest of the information you need to convey, likely market size, pricing, route to profitability, exit etc. Spending time on getting this right will repay itself many times over. Indeed, I am sure that it played a large part in the speed with which we raised funds.

When preparing your pitch avoid all temptation to paint a picture that is unrealistic. Your investors are likely to have a good head for business and as soon as they sense a proposition lacks integrity it will be dismissed. So, always be honest and if potential investors raise a question take the time to give it a full and respectful answer; it will be read by a lot of other potential investors.

The offer

This is a very important part of the process and somewhere I would recommend that external advice is sought. If the valuation post money is eye-watering you are unlikely to attract investors.  Likewise, if too little equity is being released this may deter some investors. Indeed, selling a small percentage of the business for a hefty premium can give rise to a misleading valuation that could prove problematic if future funding is necessary. This is because the early investors may resent the lower valuation necessary to secure the next round of funding.

Crowdfunding is a fantastic way to raise funds if the model works for your business. It’s a process I’d recommend as long as you’re realistic and do the necessary groundwork.

Further reading on crowdfunding

Looking for finance? SmallBusiness.co.uk is working in partnership with trusted lenders to find the best business funding deals. Find out more here.

Henry Catchpole

Wilmer Hartmann

Henry Catchpole is Chief Executive Officer, Inform Direct.

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