Equity Crowdfunding Mistakes and How to Avoid Them
From having a business plan to getting your pitch right, here's 7 tips to help you raise money via crowdfunding
Over the past few years alternative sources of finance have been coming to the fore as small and medium-sized firms have found it harder to access traditional forms of funding.
Debt factoring and invoice financing are becoming more popular and the crowdfunding arena has grown considerably over recent months.
The equity crowdfunding model is one where businesses can attract finance in return for an equity stake in their venture and equity crowdfunding is becoming more mainstream as it takes off as a viable alternative.
Equity funding allows potential investors to become real life online dragons and invest in the future of small and medium-sized businesses but if you’re pitching your own business then you’ll need to be “crowd-investment ready”.
BankToTheFuture.com is an equity crowdfunding platform, currently pitching to the public in its bid to become a Crowd-Investment Bank. CEO Simon Dixon has identified the top seven mistakes made by small businesses when pitching to the crowd and shares them here with is4profit’s readers.
1. Making a great impression
Some businesses are more likely than others to succeed in equity crowd funding and online that means ensuring that your video pitch is perfect.
Glossy animations are well and good but Simon Dixon believes that investors want to see who they are investing in, to look into the whites of the pitcher’s eyes, read your body language and gauge your passion.
By producing a good looking and engaging presentation your pitch is more likely to inspire your viewers and turn them into investors.
2. Apply for Enterprise Investment
The Government has a number of schemes to help SMEs gain access to finance.
- The Enterprise Investment Scheme (EIS) helps high risk small businesses raise funds by offering 30% tax relief to investors (up to £1 million)
- Seed Enterprise Investment Scheme (SEIS) is for early stage businesses and offers 50% tax relief up to a £100,000 maximum annual investment.
By applying for EIS/SEIS firms will make themselves more attractive to investors.
3. Valuing the business correctly
If you get your business valuation right then you’ll make investors want to open their wallets. If you need to raise £100,000 but you’re only offering 25% of your venture, then you will be asked how you arrived at that figure and you’d better have a very good answer.
Simon’s advice is that you need to assign value to all of the assets in your business and then work out how much equity the crowd has access to based upon your business valuation.
The offer needs to be attractive both financially and in terms of the perceived risk to your investors, after all, the risk to you is less because you have control over the venture, they do not.
4. Draw up the best business plan
Simon has seen 127 page business plans and they are not attractive to investors. If your potential buyers can’t be bothered to wade through such a massive amount of information then they won’t have the time to invest in you.
Make sure that your business plan gets attention, don’t use those free business advice templates you might find via a search engine because they’re boring and all you’re doing is filling in the blanks.
In the end, Simon’s best advice is to maybe have 10 points listed in PowerPoint.
5. You’re forecasting more revenue than Apple? really?
Aspirations are a good thing but if you draw a hockey stick shaped graph that predicts more revenu than Apple, Google and Microsoft over the next three years, then that might be going too far.
Start with where your business is today and draw up a realistic financial forecast that based on your current team, projected over the next few years.
6. Think about rewards for funders
As an equity crowdfunding platform BankToTheFuture.com has offers attractive to both backers and investors.
Over 50% of backers on the platform are often not looking for financial investment but for rewards instead – by thinking through what rewards you will offer you can attract more funding in return for less equity.
Then by sharing your reward offers on social media you can attract backers who will offer cash just to support your business.
By making the right pitch that combines both equity and rewards you can maximise your offering.
7. The perfect pitch
If you have the best idea in the world you’ll get no investment if you fail to pitch it properly.
You should be able to pitch your idea offline in just 20 minutes.
Include your 10 most important points in 10 slides. These are:
- The elevator pitch – how you’d explain your business in the time it takes to ride an elevator
- The problem – what is the problem your business is trying to solve?
- The solution – your business has the solution, so what is it?
- Meet the team – Who is going to deliver these solutions?
- Market size – Are you a small fish in a big pond or a big fish in a small pond?
- Marketing – You need to get your solution out there, how will you do it?
- Who are the competition?
- The financials – Tell your investors your current state of finances and your projections with their backing
- Your milestones – What do you plan to achieve and by when?
Your video is a mission video, detailing why your customers love what you do and then get your 10 points across.
Raising equity crowdfunding finance is all about doing the preparation right. Get it right and you could end up with your full investment and a whole bunch of happy equity shareholders.