Ten Things Learnt in setting up an Equity Crowdfunding Round
Last October (2017) I wrote about my first ten months of being a female start-up founder, which I just re-read after some time, and realise how much more I have learnt since then even, in what I am now fondly calling ‘my intensive vocational MBA’.
The focus of this post is on the lessons learnt in setting up an equity crowd-funding round, something I feel I’m only now able to reflect upon after our Seedrs campaign successfully hit ‘fully funded’ this week after just 21 days (thanks to everyone for support so far!). Here are the biggest lessons I’ve learnt about this process for anyone considering this pathway.
- Weigh up the platform options (but don’t procrastinate):
Before deciding on using Seedrs for our equity fundraise, I spoke with a number of people (this is UK btw for overseas readers) to compare experiences. I met with a company who had recently used Seedrs and a company who had recently raised with Crowdcube. I met with someone from the Crowdcube team, spoke on the phone to a couple of people at Seedrs and also chatted to relative newcomers SparkUp. There were a number of things to discuss (for confidentiality reasons I can’t disclose answers or terms), but these are some of the things to consider asking them if you’re looking to compare options:
- What is their success rate for your kind of round — SEIS/EIS, <£250K >£250K. etc.?
- Can they give you any indication of what percentage of each raise comes through their platform community vs. the start-up’s community?
- What percentage of your raise do they recommend you have in place before launching? (My advice — it’s stressful enough as it is, I wouldn’t start at less than 50% and then consider moving to over-funding.)
- What percentage do they take as their fee and are there additional costs to anticipate?
- What does their SHA look like?
I spent some time (probably too much — and apologies to Darren at Crowdcube) weighing up the options and diligently creating an over-zealous spreadsheet calculating potential raise with offered terms and breaking down pros and cons of each. In retrospect, I spent far too long on this, especially when I finally calculated that the overall difference was going to fall at around £34.20.
Basically, speak to a few people and Pick a Team.
2) It will take you longer than you think to get your campaign set up:
Several people warned me that setting up an equity fundraising round would be a lot of work.
One person told me to estimate 5 months work whilst Angel Academe suggested to leave 6–12 months for a first raise. ‘Surely I can get this nailed within three…’, I secretly thought.
WRONG. Many months later… It took ages and it is a lot of work. But there is good reason for this and none of it is wasted time. (See next point)
3) Due Diligence — an arduous but, ultimately, useful process:
Any crowdfunding platform is taking on the responsibility of having vetted a company before going out and sharing with its own community. For this reason, they are naturally extremely diligent! For a start-up founder, where you’re already balancing a number of different roles, the administration involved with getting the right information over to them will create a whole new work-stream, but the advantages of getting all this in place will only put you in good stead going forward.
The key things we needed to have in place were:
- Pitch Deck — with any claims around markets / data substantiated and referenced (thanks to John Bennett for helping me with Yodomo’s pitch deck)
- Script for Video — again with any claims around the business clearly substantiated
- Clear line on what the funds would be used for — ideally with Cashflow in place to show potential investors.
- SEIS / EIS Advance Assurance documentation
The due diligence process also helped us to fast-track and iron out any pending legal paperwork — for us this included a ‘lurking convertible note’ (thanks to Chris Corbishley at Forward Partners for coining this jolly phrase), and also hastened our finalising of some essential agreements — for example an Advisor’s Agreement with an existing Shareholder, Assignment Agreements with Contractors, Vesting Schedules, Partnership Contracts, etc.
4) Reach out to your network, that is to say — Really Reach Out!
First off, in the lead-up before going live with your Campaign Page, try to educate your Friends and Family on the process of investing through the platform. To be fair to Seedrs, this was really clearly advised across all their literature, but I hadn’t clocked what a hurdle this could be for some.
While most people are used to donating through platforms such as JustGiving, or supporting projects through Kickstarter, do try and consider how off-putting the language around investment can be to anyone not used to it. After all YOUR CAPITAL IS AT RISK. (I now just casually add this line as a sub-note to everything to ensure I’m covered…).
Explain before the round begins that all investors will need to do a quiz to ensure that they understand the risks involved, and will need to verify their identity before being able to invest.
Then have some fun (I can use this word retrospectively) seeing how many people you can possibly contact about the campaign. I had a Master Doc with different tabs for Friends, Family, Colleagues, Angels, VCs, etc. There was a lot of staring at the list and thinking — ‘hmm…. can I really contact them?’ having not spoken to them for several months, years even… I plucked up the courage to get in touch.
In a nutshell, swallow your pride, explain the stage and make the ask. Have a good think about who owes you one — who you’ve found a job for recently, who you’ve recommended for a contract, who you’ve set up on a (successful) date, etc.
Importantly, think about who has done this round before as they will feel your pain and want to help.
Also consider staggering pushes to different groups, so that you don’t have really dry points in the campaign when no-one is investing at all.
Make LinkedIn your special friend, and just accept that you’re going to have to be a little shouty for a bit.
We were also pleasantly surprised at how many investors came through Seedrs’ community with investments ranging from £16.52 — £3.000, often anonymous. Our ratio at time of writing was 50/50 of investors who came from our own network vs Seedrs’ network, but to be clear this appears to differ for each startup.
5) Allocate time for researching and speaking with Angels
One of my most memorable episodes of The Apprentice was when teams were sent to sell things at a country show — one team had to sell a high-value item (hot tubs selling at around £4k), while the other teams were running around the fields trying to sell flat cap handbags, lawnmowers and foldable wellies. It took the hot tub team a long time to hone their pitch, but eventually they sold one and, of course, they won the task.
I remembered this episode as I was chasing up old colleagues to see if I could interest them the campaign (our minimum investment was £16.52), and was mindful to ensure that I balanced my efforts in researching, reaching out to and (hopefully) speaking with bigger ticket Angel investors.
The guys at Forward Partners kindly pointed us in the direction of a great source of Angels listed through Crunchbase. We cross-referenced with LinkedIn and t’internet, working through the list and looking for Angels we felt would be a good fit and whose personal and professional interests might mean they’d be interested in our campaign. Although the research required some investment in time, we got to a number of Angels directly, some great positive responses and it turned out to be well worth it.
That said, try to understand how the algorithm of your platform’s page works. We quickly worked out that the number of investors affected the algorithm too and helped to keep our campaign to the top of the page, so those smaller investments have been really invaluable too.
Stagger pushes to different groups so that you don’t have really dry points in the campaign when no-one is investing.
7) Respond quickly to queries and make regular updates:
Have an ‘on call’ approach during the round and ensure that you can respond quickly to any questions or requests for documentations through the platform. This especially includes evenings and weekends — our peak interest times for enquiries for more information have been Monday — Thursday evenings and Sundays.
In addition, make use of the Updates section and ensure that any news is added that might add to building up a positive picture for your campaign. For example, during the round we got a great review of Yodomo on Startacus, and we were invited to pitch to judges for the BIMA Advance Award for Start-up of the Year.
It’s all fuel to the fire. Make sure that you keep everyone updated.
8) Use the round as a chance to touch base with later-stage investors for later on down the line
If there’s one thing I’ve worked out, it’s that as a start-up founder you are always fundraising. This first Seedrs round will certainly give us a bit of runway and has got to be better than the last year of boot-strapping (AllofUs studio can tell you how often I’ve had a poached egg on their sourdough toast for lunch). However, I can also see that I need to be looking to the next round almost immediately.
With that in mind, use your crowdfunding round to communicate to anyone you’re interested in speaking to further down the line, even if you’re evidently too early-stage for them right now. I emailed the campaign page to a number of people I’d met simply to touch base, and had a really positive response (always more positive when there is not an immediate ask) so well worth doing.
Through Seedrs (which btw was excellent in generating general interest in Yodomo), I had a couple of great VC leads and and a couple of meetings set up with a view to seeing how we get on over the next 12 months.
I should add the round also prompted a lot of people to get in touch from recruitment firms, development teams and financial services….
9) Don’t Panic when there are slow periods
There will be days when not much happens at all. Don’t Panic on these days — and resist the urge of refreshing the Campaign Page every two seconds (I have no idea how many times I have refreshed our page so far — but Too Many Times). Instead, try and take a step back — look at your list, move to LinkedIn, go through your emails, dust down your business cards, and research potential big ticket investors (see 5). Psychologically you’ll feel at least like you’re doing something proactive, even if the bar is not moving at all.
There might be quite practical reasons why it’s like tumbleweed out there. For example, our round was during the World Cup and given that most of our investors are UK-based there were some very quiet moments while the England matches were on.
Consider the practical reasons that might affect the campaign and do something else to move things forward during these downtimes.
10) Paying it forward…
My personal journey was helped enormously by the generous advice about equity crowdfunding from others — in particular and with thanks to Harley Green at Seedrs (and the rest of the Seedrs team), Darren Mulvihill at Crowdcube, Richard Davies at Twickets, James Mansfield at Field & Flower, Chris Barnes at Black Bee Honey, Rutger Bruining at StoryTerrace, Lorraine Dickey at 451life and Andrew Kidd and Ayesha Karim at Alexi.
Paying it forward, if you’re contemplating the equity crowdfunding route and would like a chat then I’m more than happy to share my experience — simply get in touch.
Sophie Rochester, Ceo and founder of Yodomo
Yodomo’s Seedrs Campaign is now in *overfunding*. You can still check out our Campaign Page and join our community!
Originally published at medium.com on July 11, 2018.
