Which crowdfunding platform is best? When is the best time to launch? 10 FAQs from prospective crowdfunders, with answers!Jan 04, 2022
Having now supported hundreds of fundraises, we speak with lots of CEOs and founders considering whether crowdfunding is the right step for their business. Here are 10 commonly asked questions from prospective crowdfunders and our responses.
- What do you think the appetite for investment is right now on a crowdfunding platform?
Good, for those opportunities which are well-validated. And here is what we mean by that. You need to think of crowdfunding as a 2 step process. Step 1 is to promote the opportunity and to raise investment from your existing and wider network (with our help if we work together). Step 2 is to push that investment onto a crowdfunding platform (again, with our help). The momentum from Step 1 acts as validation for unknown investors who don’t know you from Adam, to take interest in the business opportunity and hopefully invest alongside your own network (see Step 1).
Crowdfunding platforms should be seen as a mechanism to collect investment from a confirmed crowd of investors (this could be anything from a few to a few hundred) rather than as a mechanism to raise an entire round of funding. The platform can then also be used to promote the opportunity to a wider investor audience.
- How much of our target do you think needs to be raised from our own network before launching on a platform?
So, when we work with a client, we very closely guide you on what we call your ‘launch strategy’ and within this strategy, we consider three targets. 1) your initial target 2) your desired target and 3) your overfunding target. So your crowdfunding targets might look like this.
We would never advise a client to launch with less than 50% of the initial target confirmed, but ideally closer to 70% to give your campaign the best chance at success. In the client example given above, we supported them to raise almost 100% of their initial target prior to launching, and they overfunded by almost 200% to their overfunding target. So what they actually raised prior to launching of their total investment raised, was about 54% (with our support).
- How long does the process typically take?
Well, it depends where you are in the process. Typically, our process* takes around 10-12 weeks if you want to get it right and not really rush anything. The piece of the preparation that takes the longest is securing a significant portion of the investment from your existing and wider network before you go live on a platform, as we’ve explained so that you’re well-validated for those investors who don’t know you from Adam. We provide you with the email templates and guidelines for doing this, but until you get into the process, you don’t know how quickly those conversations are going to turn into committed investments. We’re writing this article in January 2022 and would like to be taking on clients now who are looking to launch from March 2022, ideally, to have enough time to really get things right.
* note we said “our process”, because it might not be the same as another process. If followed properly, our process sees clients launching on leading platforms having almost a 100% success rate.
- What is the reason for the failure of the clients that launch with you and don’t fund?
Almost always it is unforeseen circumstances that prevent lead investment from being pledged at the very last minute at the beginning of a campaign or cause it to be pulled out during a campaign. Examples include the announcement of Brexit the day after launch, the announcement of a global pandemic three days after launch, or the death of the spouse of a lead investor during the week of launch. These sorts of things are largely out of everyone’s control and can create last-minute uncertainty for investors at times at the height of their announcements. This uncertainty can usually be placated with conversations and time, however, when the clock is ticking on a campaign this can unfortunately not be enough time to get it over the line before the timer runs out.
- What is the better platform in your opinion, Seedrs or Crowdcube, and which one do you think would be best for my business?
We work with and rate both platforms highly as being the busiest equity investment platforms in Europe, and our clients have a very high success rate on both. There are some differences between the platforms, but we don’t advise on platform choice. We do advise that you speak to both platforms (and others if you wish) as you get closer to being ready to launch your campaign and choose the one which feels like it is the best fit for you and your business. We can make introductions to the right people at both if you like. It isn’t up to us to sell the platforms to you, they are also big and clever enough to sell themselves :-).
- Are there any other crowdfunding platforms that you recommend?
Yes, of course, there are lots of other reputable platforms that are location and niche-specific. But again, we suggest you do your own homework on platform choice. We have a global list of crowdfunding platforms we can provide to you if you wish.
- When does the video need to be filmed?
Definitely not yet. This is often the first thing people think they need to do when in reality we don’t recommend our clients put a video together until towards the end of the process. A few reasons why…
- a) you want the information in your video to be as up-to-date as possible and if it is June and you’re not launching until September, why film now?
- b) you want to make sure you have fully de-risked your campaign’s chance of failing before you invest in a video, or you could be wasting your time and money,
- c) some platforms like to sign off the video script as part of the regulated financial promotion, so you should get that sign off first, in order to avoid re-filming things and finally,
- d) there are multiple other things that contribute to the success of a crowdfunding campaign that are equally, if not more important than the video to be doing first.
If we work together, we will tell you exactly when you need to 1) speak to videography partners 2) script your video and 3) film it.
- What kind of control do crowd investors have over the business?
You will most likely be selling ordinary shares. You will not be expected to give board level positions to these investors (unless otherwise agreed on your own terms). This is also a good time for us to mention that the two leading platforms here in the UK serving the UK and Europe offer a nominee structure, whereby they can act as the nominee shareholder on behalf of the multiple investors that invest in your business. This adds protection for both you and the investors. Speak to the platforms about this option when you talk to them.
- When is the best time to launch a crowdfunding campaign?
Equity crowdfunding used to feel seasonal, with the platforms seeming much more quiet over the summer months. However in the past few years as the industry has grown and matured, the seasonality has reduced and the platforms have steady investment coming into campaigns all year round. So ‘any time’ is our answer to this question, so long as you have prepared your campaign well, there should be no reason you can’t launch it on Christmas Eve if you want… though you might have other things you would rather be doing.
- What is the market like for b2b businesses?
Fine. There is no denying the fact that the platforms seem to be dominated by B2C businesses. As we write this, 3/19 pitches on Seedrs are B2B and 4/18 pitches on Crowdcube are B2B. BUT this does not mean that B2B businesses cannot do very well. We have supported multiple B2B businesses to raise on both platforms. There are various subtleties to the communications and the communication strategy to be aware of if you’re a B2B business, but other than that, the fundamentals are the same. The investors on these platforms are typically seeking to diversify their portfolios and invest in sound business opportunities, so if you’re a B2B company with a well-validated and well-presented opportunity, there should be no reason that some investors won’t be interested in your business.
If you have more questions that you would like a member of the ISQ team to answer, or if you are interested in following our process to launch a crowdfunding campaign for your business, then please follow this link to book a no obligation chat with us.