Leveraging the ‘Crowd’ for Equity Fundraising
This summer, Dash (connected car platform) decided to raise funds to accelerate our go to market for a new set of fleet products.
We had previously financed the business in 2014, via a combination of angel investors (including Dennis Crowley, Dave Morin, Bre Pettis, Amol Sarva, Jeff Bonforte), an accelerator (Techstars) and institutional investors (Urban.Us, CyberAgent, Phystech Ventures). We used that early capital to reach nearly 500,000 users in more than 100 countries, driving $4m in enterprise revenue.
As we looked at the financing landscape in 2018, for companies at our stage, traction, sector and capital needs, we began looking more closely at equity crowd-funding as an area that was becoming more of a mainstream.
While we researched key platforms that enabled equity crowd-funding, one kept emerging as a leader in the space — SeedInvest. They were helping companies raise larger amounts of capital, with more of a technology focus — for example, Knightscope robotics recently raised $25m via their platform.
Meeting the SeedInvest team, we were impressed with their energy, professionalism and a strong process-driven approach to managing due diligence, as well as coordinating the complex admin needs the SEC required for such an offering.
In the end, given the amount we were looking to raise, we opted for a “side by side” Reg. CF / Reg. D. raise — in effect like a very ‘mini-IPO’. The legal, financial, accounting, strategic and operational requirements were material efforts upfront.
Six weeks after we began, we were ready to go live. And after two nerve-wracking months of running the campaign, here are the main takeaways we have for other founders who may be considering crowd-funding their venture.
- Pick the right equity crowdfunding partner
- Just like traditional crowdfunding, choosing the right platform is crucial. This is particularly important for equity crowdfunding because your partner is responsible for helping you with regulatory compliance. In addition, take time to learn about their accredited investor network, reach, check size, deal participation and due diligence process. Make sure to do reference checks with founders from their prior deals.
2. Select the right dollar amount for your raise
- Setting the right ‘escrow amount’ (i.e. minimum investment hurdle) is critical, because if you don’t hit your target, no funds will be collected. You have to strike the right balance in being high enough to signal a credible ambition, while realistic enough to attain the funding goal. Your financial plan should be grounded in reality, as — with luck — you are going to get the capital and will then be tasked with hitting those forecasts.
3. Match the story to the audience
- Mastering your story is vital — it has to balance a bold vision with a tangible path to execution, in service of a large market opportunity. While the pitch deck will be similar to what you present to a traditional venture capital investor, recognize that equity crowdfunding investors may decide more on instinct and what moves them. So, while you should address unit economics and technology IP, ensure you demonstrate a passion and energy that instills a retail investor with belief in the founders’ vision.
4. Invest in creating professional materials
- First impressions matter. And while you don’t need to be an expert in design, there are plenty of people who can help you make your story look good. Hire a freelancer to make your assets pop, from text and images, to videos and presentations. Make it sizzle, but also ensure the basics are right — is the audio clear, is the script crisp? People reviewing the materials make their mind up fast — low quality videos are an instant turnoff — so, make sure you paint the best picture from the first frame.
5. Rewards don’t drive equity campaigns
- Whereas Kickstarter campaigns are often built around a physical product that the contributor may desire, with equity crowdfunding owning a part of the company is the goal. While startup swag may incentivize the smaller investors, the more material check-writers are making a decision based on the market size and growth potential of the company. Don’t cheapen your offering with nick nacks for the sake of it.
6. Get investments before the campaign starts
- While equity crowdfunding platforms will bring their network of accredited investors to the table, you cannot just rely on that pool. They expect you to activate your own network — including both new and existing investors — to confirm participation in the round before the campaign starts. Some platforms will not even show any movement of the progress bar until it exceeds 20% of the stated goal.
7. Juicing momentum, both organic and paid
- From A to Z of the campaign, there will be sprints and lulls. Have a strategy to ensure ongoing momentum. In the inevitable sag in the middle, you have to deliver a steady feed of news — product launches, BD partnerships, press or awards — to give investors confidence that you are moving forward. You should also rapidly respond to all investor questions on the platform — be engaging, be responsive. Outside of these organic tactics, you want to drive traffic via paid ads, but know that it can be hard to track ROI, depending on the conversion tools used by the platform.
8. Communicate transparently and manage expectations
- Communicating wins is essential, but also be prepared to be transparent with investors where things are challenging. Given the diligence required for the SEC process, included audited financials, the data is all public, so it is important to be upfront in addressing weak spots or concerns investor may have. It is equally important to manage the expectations of your team. With a campaign live, they can see the progress — or lack of it — in the public domain, so communicate the plan of action to them and keep the morale up by being honest and giving them a sense of ownership. In the event you don’t hit your target, mitigate your risks and put the team first.
9. Deadlines are your friend
- Deadlines can create anxiety, especially as you near the end of a campaign. The last few days are enough to give you grey hairs. But they can also help you in two ways — firstly, with investors and secondly, for your team. For investors, the public countdown of a campaign creates a clear shot clock for them to make a decision and can create FOMO. By the same token, knowing there is a deadline creates a bias towards action for your team — ship that feature, close that deal, get that press. While you should always operate with that sense of urgency, campaign deadlines can give added structure to execution.
10. Use the campaign as a learning experience
- Given the reach that a equity crowdfunding platform provides, you will have a chance to share your story and test your delivery to a much broader audience than in 1–1 meetings with venture capital investors. In fact, many of the platform investors are more likely to be closer to your customers than a typical VC. Use that scale and proximity as a feedback loop for your story. The network is a crowdsourced focus group for you. And it can deliver a tough lesson — maybe you don’t get funded — but that is still something to be learned. And by the same token, if you do find yourself raising capital via equity crowdfunding, you should feel very positive about the mandate that gives you to move forward.
BONUS: Never, never, never, never give up
Oh, in case you’re wondering, we did manage to raise successfully — we exceeded our initial target by nearly 25% and are now deploying that capital towards our reinvigorated roadmap. Thank you to all our investors, supporters, and the team at SeedInvest and Dash!
The car industry is in the middle of a generational shift in how we view mobility. Increasingly, drivers are anticipating the trend towards autonomous, connected, electrified, and shared (A.C.E.S.) vehicles. At Dash, we believe there is an opportunity to harness driving data and use it to improve transportation: both for cars today, as well as vehicles of this connected future.
Dash has built a ‘Vehicle Intelligence Platform’ with a vision to be the world’s leading telematics marketplace. Our mobility products have been used by nearly 500,000 drivers in more than 100 countries, and we have worked with commercial partners including Ford, Johnson Controls, Mann+Hummel, Department of Transportation NYC, AllState, REMA Insurance, and more.
By leveraging driver behavior data and vehicle performance data directly from our ‘Drive Smart’ product users, and our machine learning capabilities, Dash creates algorithms to enhance actuarial risk analysis, as well as predictive maintenance models, infrastructure planning, policy recommendations, and advertiser targeting. In addition, Dash’s data can be used to inform autonomous vehicle driving models, by better anticipating the behavior of surrounding human drivers. For more information, visit www.dash.by