Whether it is to start your own company or to grow it to the next level, even the greatest entrepreneurs with the largest amount of business management knowledge cannot avoid fundraising. “Fundraising is not an exact science, there is no recipe for guaranteed success”, says Chris Thomas, founder of international crowdfunding platform Eureeca. Even though it is unpredictable, there are a few aspects that can contribute to the success of a crowdfunding campaign. In our irregular series VC View, Thomas shares his key findings how to successfully run a crowdfunding campaign.
Determine the added value
“Shortage of money leads to creativity and ingenuity: the main ingredients for a successful venture”, Thomas says. Look for creative ways to improve your business. Use the internet, for example, this has made many business processes a whole lot easier. Different kinds of software are available, entrepreneurs can work anywhere they would like to and thanks to e-mail and social media reaching out to people and companies for help is a lot easier. Also, fundraising can get addictive for companies. As soon as the first funding round comes through new employees are hired, new equipment is bought. That money is spent before you even realize it. At that moment, the craving for money starts again for most companies. Before getting in this rollercoaster, it would be beneficiary for entrepreneurs to determine if they truly need the money and if they truly need it right now.
A time-consuming process
Entrepreneurs need to take into consideration that a good funding campaign takes a lot of time. Although crowdfunding adds to the efficiency of the funding process and speeds it up with a few months compared to ‘offline’ fundraising, it will in most cases take six to eight months until the money is transferred into the bank account. Thomas his advice: “Carefully plan your campaign, so you don’t end up in a stressful situation”. Create a clear timeline. This will result in clarity for the entrepreneur, it will keep him on his game and will also benefit the negotiation process between entrepreneur and investors.
The first blow is half the battle
Most entrepreneurs will already be in possession of a clear business plan. The next step is to set up a plan for the funded money. This plan will keep the entrepreneur on his or her toes and often this is a requirement by the crowdfunding platform in order to inform potential backers about the project. The goal is to make the company stand and run on its own as soon as possible, without external funds. The funds that are raised by the crowdfunding campaign should contribute to this. Next to this, it is vital of hyper-importance to always keep you customer in mind. “If there is a possibility to invest in improving customer processes, that is the way to go”, Thomas adds. After all, satisfied customers lead to a successful business.
Avoid unexpected situations
Where a few a years ago entrepreneurs worried about whether they would raise the desired amount, nowadays overfunding (raising more than the initial goal) is not uncommon. Isn’t this every entrepreneurs dream? Yes, but only with the right plan says Thomas. Things to consider: is it smart to collect the money now or to wait for a possible second funding round? If this scenario will become reality, what aspects are you planning to spend the money on? Mapping this out is advised as this gives clarity for the entrepreneur and raises the change to gets the investors on board.
Shares vs. loans
When it is clear what goals you pursue with the funding, it’s time to choose the type of crowdfunding and the platform that suits you, your plans and your venture. For companies that are already set up and at least have developed a prototype of the product, there are roughly two choices: 1) crowdfunding based on loans, or 2) crowdfunding based on shares. Are you aiming to increase the company’s cash flow to buy new inventory of which you know for sure will sell in a few months? Then crowdfunding based on loans is the way to go.
But when the company is an SME, that’s already profitable and the entrepreneur wants the company to grow very fast, then the best option is to trade funding for shares. This way profits can be directly reinvested in the company. The next step is the orientation on the range of crowdfunding platforms. Making your choice based on aspects that are important to you and your company is key. Things to look out for are: the amount of professional guidance that is offered, the minimum buy-in and the size of the market the platform serves.
Funding is funding
An extra tip from Thomas: do not just aim for raising smart money: funding received from investors with the right connections and will contribute to the company on a strategic level. Most investors will just provide financial recourses and when they do offer support in business development, fast profits will be desired or even expected. Try to raise the money from a wide spectrum of investors and focus on building an innovative company.
Once the best type of crowdfunding and platform are selected, it is time to strengthen the business documentation and to create the best material to persuade potential investors. Make sure your pitch includes the following eleven aspects:
1) information about your product or service, 2) the USP’s (Unique Selling Points), 3) the problem that is solved by your product and your target audience, 4) the size of the market, 5) your competitors, 6) current developments within the market that can have an effect on your business success, 7) the entrepreneurs and partners of your company, 8) financial forecasts, 9) the required amount of funding, 10) what aspects the money will be spend on and how these expenses will contribute to your company’s growth, and 11) what the process looks like for investors after they’ve backed the company.
Every platform offers different options and uses its own demands on communicating this information.
Sell, sell, sell
The campaign is online, the game has begun. Now it’s time to get investors to fund your company. “Potential investors are everywhere, so be prepared at all times”, says Thomas. Make sure you are representative: not only in your appearance, but also in your pitch. The aspects of the business pitch we have discussed earlier are also required in your real-life pitch. Make sure you visit relevant networking events and use your own network to find investors.
Don’t forget the power of social media too. This is an excellent way of keeping your network up-to-date about the progress of your crowdfunding campaign and results in involvement on their part. If your own network is not sufficient enough, hiring professional help is also an option. They are able to boost the publicity of innovative company and crowdfunding campaign.