Equity-based crowdfunding

Are you looking to scale up your business and need some capital? Well, you have a few alternatives, and one of them is today’s topic, equity-based crowdfunding. Let’s dive into it!

What is equity-based crowdfunding? 

Well, it’s a close cousin of rewards-based crowdfunding, that we’ve discussed a few times in this blog. But the people that contribute to your campaign, instead of looking for a physical reward (or an experience) they want a piece of the action: they want shares in your company.

I have recently uploaded a video in YouTube summarising this article and giving some examples:

What platforms can I use?

The biggest two platforms to run equity crowdfunding campaigns are Seedrs and Crowdcube. 

At the time of writing this article (February ’21), the platforms are in the process of merger. I published an article sharing my thoughts on the topic. The Competition and Mergers Authority (CMA) will publish their report in April and I will then publish another article with my thoughts.

There are other platforms such as Fellow Funders in Spain, Companisto in Germany or Capital Cell that specialises in life sciences.

It’s worth spending a bit of time doing some research and see what platform fits best for your company and industry.

These platforms will let you, once they’ve done their due diligence, run a campaign taking 6-7% of the money raised through their platforms.

Characteristics of equity-based crowdfunding campaigns

• They’re time-bound: typically in an equity crowdfunding campaign, you’ll have a private phase, in which only people with a link can invest. That will be your cornerstone investors and your community and lasts typically a couple of weeks. And a public part where everyone can invest that typically lasts about 30 days. In this post, I discuss a typical timeline for an equity crowdfunding campaign in detail.
• You must set an objective of how much money you’d like to raise. You can set also another internal goal of how much money you will accept – the more money you raise the more equity you are releasing!
• The campaigns are all or nothing. It makes a lot of sense because you’re saying that you need a certain amount to execute your business plan. If you don’t reach that quantity, you won’t be able to execute the advertised business plan.
• You must set a company valuation – from that, the equity released is a simple calculation. We’ll make a video in the future detailing these calculations and how to set your valuation.

Benefits of an equity-based crowdfunding campaign

1. Raising the funds that you need to execute your business plan. As we mentioned at the beginning of the article, you have alternatives and it’s good to make sure which one fits best your company stage and vertical.
2. You’re giving away equity. The money will go straight into executing your business plan. You don’t need to return the money or fulfil sales.
3. And because you have a lot of smaller investors, no one with too much control of the company. If you go the VC route (or with a big angel syndicate) you will probably need to relinquish a bit more control.
4. It’s a great way to validate your business plan. Now, I’m not saying to go with your first iteration of the plan! But surely you’ll receive great pieces of advice during the campaign.
5. Building awareness of your brand: a crowdfunding campaign is, after all, a marketing campaign on steroids. If you’ve done your job well, the reach of this campaign will build awareness in audiences that won’t have heard of your product before.
6. Creating an army of advocates: people that back your project will feel part of your journey, making them more likely to use your product and will, no doubt, talk to their friends and family about the project they’ve supported. Win! A lot of Fintech companies are using equity crowdfunding to create a fan base that not only invest but also have much better metrics than the people that don’t invest.

Wrapping it up

An equity crowdfunding campaign is a great way to raise money for your startup that also has many additional benefits. If you have any comments or queries, feel free to contact me. You can also check my services here.