Five Crowdfunding Tips for Founders

Five Crowdfunding Tips for Founders

03-Aug-2018 by Alex Stephany

1. Don’t launch too soon

As with any investment round, don’t raise too soon or too much. Especially at early stages, the cost of capital in terms of the large chunk you’ll give away is high. In order to achieve a valuation that is high and credible, you need to show traction on your operational and financial KPIs. So if your business is little more than an idea, go out there and do whatever you can to get customers and early revenues. That’ll mean hustling and perhaps a few too many meals of beans and toast. But you might be glad down the line if you can negotiate a better valuation on your first fundraise.

2. Test demand

How do you know if your fundraising will pop or crash? One way to help derisk your round is simply to ask your customers. We put together a simple email, explaining what equity crowdfunding is, and then sent interested parties through to a Google Form where they could register interest in a potential round. A word of warning – offering shares in a company for sale to the public is a highly regulated activity and there are scary financial and even criminal penalties for those who break the law. So get good legal advice before you communicate about a potential fundraising. 

3. Pull in pre-pledges before launching

We’re simple instinctual animals who watch and copy. Time and again on all sorts of crowdfunding platforms (including one I’m advising now – Spacehive) it’s been shown that rounds that quickly reach certain thresholds are more likely to close. Aim to have at the very least 30% of your full raise (and ideally 50% of it) in the bag before going onto the platform and confirm with the crowdfunding platform that it can be shown on the all-important “progress bar”. The trick is bringing in money at a valuation you’re happy with by showing angels you have the back-up option of the crowd and by showing the crowd that angels have taken the plunge. 

4. Have a slick video

I hear people whinge about making the video and others lament that it’s crazy people put such weight on a video when it comes to investing. Another way to look at this is as a test of execution and story-telling: if a company (even one with limited funds) does not have the skill and resourcefulness to make a compelling, well-produced video will they really succeed as a startup? A slick, engaging video is table stakes.

5. Be honest

Has a competitor just raised $6M? Don’t pretend they don’t exist. Rather, explain how you’re differentiated and will win or why there’s space for you both. Are parts of your business plan unproven? That’s inevitable and don’t pretend you have every wrinkle worked out. If there’s something that you don’t want to come up, chances are it will. So pre-empt it on the pitch. If it’s left to a potential investor to flag the lack of candour in your pitch or in one of your forum responses, don’t expect the crowd to be forgiving. Be honest with the crowd about the challenges you face because every young business has them. In the process, you’ll gain the crowd’s respect.

Alex Stephany is the CEO and Founder of Beam - the world’s first online platform that crowdfunds employment training for homeless people. Beam is funded by the Mayor of London, partnered with more than 10 charities and working with some of the UK's top tech entrepreneurs. If you want to do incredible and life-changing work, join us. Alex is also the author of The Business of Sharing, a major book on the sharing economy published by Macmillan and a board advisor at JustPark and Spacehive.