Raising your seed round through Crowd Funding— the Trick Americans are Missing
In light of the much overdue SEC ruling on Crowd Funding here’s a little story of our experience raising money from Crowd Funding for Equity and I think you Americans are going to be suprised by how much this is going to change the game in seeking early funding.
In what can be considered a historic day for startups, small businesses and entrepreneurs all across the United States…venturebeat.com
About 12 months ago we launched our platform and it’s been gaining traction in the market place allowing us to win some great contracts with the likes of Disney and HBO. Despite the commercial success we realised in order to scale quickly we needed to raise money. Trouble was being a small team located in Denmark we lacked the depth of Angels and Venture Capitalists available in NYC or LA where media investors typically locate, we also didn’t have the time and resources to go down the traditional VC route while continuing to sell and deliver a great product. Raising money is never an easy task. Ask anyone who has been through the process and they will tell you the same three things:
- expect the process to be 6–12 months full time for one founder
- compiling your paper work for due diligence is a time consuming and difficult
- pitching & negotiating with heavy weights is daunting and nuanced
It’s a brutal grind not for the faint of heart. So if you have been through it, it’s why you’d probably appreciated this clip from HBO’s Silicon Valley.
After some thought we decided that building the client base should remain the priority and the money raise should follow. So we decided to use a UK based crowd funding site called CrowdCube. Crowd funding for equity is relatively new phenomenon (it’s not available to US and Canadian investors typically) investors pledge via a platform, funds are only deducted should the pitch complete and investors then receive a proportion of equity (shares) in the business reflective of the amount they have invested. From our experience the key deciding features for us were:
- access to funds is relatively quick (2–4 months … perfect),
- PR benefits from this public facing raise process are great for raising profile
- no draconian investor terms usually bolted onto the term sheet that can have serious implications later on.
Out pitch went live on — https://www.crowdcube.com/investment/gruvi-16924
We ended up with £150,000 for 15% of the business
Some things we have learned that may help you if you decide to go down this route:
- You will probably be expected to simplify your company structure. If you have existing Share Holders Agreements and Articles of Association you will have to spend some time lobbying share holders to make the required changes.
- Create a compelling video takes a great deal of effort and time- pitches without video flag so spend time and money on the production value as it sets a great tone.
- Due diligence on your pitch will be as complex and detailed as preparing your documentation for a VC — create a killer product presentation, product video, organise your financial documents and spend time writing a detailed business plan. We spent 6 weeks deeply buried in this process.
- In your pitch and communication focus on what is in it for the investor — make it very clear early on in your description what the product is, where it sits in the economy of your business, where the growth will occur and then state very clearly what an investor will receive if they invest in you and how you plan to exit so they can realise that profit.
“Gruvi’s platform provides entertainment brands with powerful tools and tracking that streamline audiences through to watching content & buying tickets (upto 14%) on social media at conversion rates far higher than traditional display advertising (33X). Gruvi’s client base includes HBO, Sony, Disney, etc where they have worked on 300 international campaigns.
Gruvi sits in the fast growing marketing technology sector: estimated to reach$32.4bn in 2018. Invest today and help Gruvi reach a £9 Million valuation.”
- In its early stages It is kind of like fundraising for politics — as your campaign success will depend on your PR efforts, marketing and storytelling to appeal to the crowd. Make sure you develop your networks and alert them to the upcoming raise well before you start.
- You have to work your own early investors and bring them to the table, so try and organise to have between 20 -30% of the money committed within a few days of the launch, empty pitches really suffer from being ignored.
- Get used to lobbying — raising money this way is not unlike working on the campaign trail for an election, you have to work your socks off talking and communicating with people constantly throughout this process.
If entrepreneurs are considering raising money it’s interesting route but there are pros and cons, principally:
- The benefits are increased exposure, PR and networking opportunities and of course — the funding itself
- The downfalls are your pitch and details are exposed to the competition and public failure to raise funds can damage your emerging brand
- It’s a lot of work and an active 45 days when you are raising be prepared for little sleep, lots of meetings and sore fingers from typing.
Here’s our pitch for reference:
Investor Terms - last updated 21 October 2015 These Investor Terms are entered into between Crowdcube Capital Limited …www.crowdcube.com
And if you need any advice or guidance feel free to reach out to me on email@example.com happy to share the learning and even happier to help you avoid the incredible drudgery of early VC conversations.