Ever wondered about equity crowdfunding and how you can leverage it to help your startup? Our friends at Seedrs, an equity crowdfunding platform for investing in early-stage startups, explain how equity crowdfunding can fit in with an accelerator experience, following the story of SBC Amsterdam alumnus team, Swogo.
Check out our guest blog post by Ricardo Sequerra, Startup Community Manager at Seedrs:
4 Takeaways on Equity Crowdfunding from a Startupbootcamp Graduate
The seed investment landscape for startups is being disrupted. Instead of choosing to go with an investor, startups are realizing how equity crowdfunding can help them reach their goals more effectively. Increasingly, more founders are finding that the benefits of equity crowdfunding such as idea validation, community building and publicity are just as valuable for their businesses as raising capital is.
Take Startupbootcamp Amsterdam graduate Swogo as an example. Swogo is a London-based bundling solution for e-commerce retailers to increase their average order value and margin. It first raised over $25,000 in seed funding from equity crowdfunding platform Seedrs in 2012. Since then, Swogo has completed two additional equity crowdfunding rounds on Seedrs, including one round after it graduated from the accelerator.
Swogo learned through practice not only when the right time to do an equity crowdfunding round for them was but also how to carry out a successful campaign. If you have heard the buzz around equity crowdfunding and are wondering if it could be the right funding solution for your startup, then here are four takeaways from Swogo that will help you better understand equity crowdfunding and how it can benefit your startup.
Equity crowdfunding is a fast and efficient way to raise seed funding.
Founders often begin by bootstrapping or raising capital from friends and family when starting a company. However, as Steven Renwick, founder of London-based credit control startup Satago, will tell you “most people don’t have £30,000 waiting from their parents” or in their own pockets for that matter. Startups with small initial investment will become hungry for angel funding, which is often hard to satisfy without at least a working product and a well-qualified founding team.
In short, founders find themselves stuck in a financing gap between raising money through friends and family and angel investment. Does this situation sound familiar to you? Swogo saw it was facing a similar problem and realized an equity crowdfunding round was the right solution.
Equity crowdfunding provided the startup team with a fast financing solution when they needed capital to build their product before entering Startupbootcamp. The money Swogo raised was also exactly what it required to get the job done. This created trust between the startup and its investors. The investors knew where their money was going and, as a result, many decided to contribute to later financing rounds.
There are more benefits to equity crowdfunding besides just raising capital.
Swogo needed seed funding to help it build its minimum viable product. The team soon realized that more benefits can result from an equity crowdfunding round. Swogo says that through its campaigns it was able to create a great network of investors, who it drew upon later for advice and further investment.
Another unique benefit was publicity. Swogo generated press to help it reach its financing goal and target audience. It was especially enthusiastic about its feature in the Financial Times that helped spread the word about what the team was working on.
In addition to publicity, there are several other ways that startups have benefited from equity crowdfunding rounds. It is an effective community building and engagement tool, for example. A smart way to gather support for your campaign is to approach the customers who already use your product or support your idea. If you just starting out and are unsure if the market will demand your product, equity crowdfunding is also a powerful method to validate your idea.
A nominee structure attracts investors and accelerators.
An equity crowdfunding platform with an nominee structure provides important benefits for both the startup and its investors. Without a nominee structure, Swogo would have had to manage its numerous shareholders on its own. This would have resulted in the need to pay and instruct costly lawyers and deal with tedious administrative burdens.
Instead, the startup opted for an equity crowdfunding platform with a nominee structure, which means it only has to deal with one legal shareholder: Seedrs. And the nominee structure also allows Swogo to have direct communication with its investors through the Seedrs platform. Its investors appreciate having direct communication with Swogo and understand that through the nominee structure their rights as investors are protected.
With a nominee structure in place, Swogo learned that it was easier to raise money from multiple investors as they grew, and that these investors felt secure in their decision to invest.
Offline networking is an important step for a successful online equity crowdfunding campaign.
When launching a crowdfunding campaign, your chances of success are often determined by the work you do before you actually launch your campaign, and even offline.
Swogo emphasized that investors still want offline contact with the startups they are investing in. Therefore, networking with investors in person and having them commit before its campaigns went live was an important learning for Swogo. The result was that the startup completed three successful equity crowdfunding rounds and was able to raise money faster than it would have had it not done offline networking.
Equity crowdfunding is still in its infancy and is estimated to continue growing at a rapid pace. This will result in more know-how and experience that will be shared in the startup ecosystem on how and when to best use equity crowdfunding for the benefit of your startup. The takeaways from Swogo are one step to begin sharing knowledge and best practices so that startups may better understand equity crowdfunding, its benefits, and what startups need to do to run a successful campaign.