by Robert Ashby, Tech Finance.
A few key points about Crowd-funding from my talk at the Leicester Tech Startups meeting on Wednesday 3rd April. (For the purpose of this blog I’m assuming a pitch for funding on the Crowdcube website).
First, timing. As in many things, timing is crucial, both in the timeline of the process of a crowd-funding pitch, and also in thinking about the overall elapsed time for the project. The overall time that is probably required is about 8 months from starting the proposed business plan to getting the cash. There are several things that need to be done in parallel, such as the business plan, the projections and getting your 3 year financial history ready. Allow 2-3 months for this. During this period you or someone you know that can certify as a sophisticated investor, should register on the crowd-funding site as an investor and look at other business plans that seem to be working.
Then you need to run three other things also in parallel – application with the business plan to Crowdcube, application to HMRC for EIS prior approval (including your business plan and financial information with the application form) and preparation of a video for the pitch. You cannot launch your pitch without a video and you should under no circumstances launch a pitch without EIS approval – it is crucial to up to 97% of potential investors. You can go online to start to prepare the pitch once Crowdcube had approved your plan in principle. This will need to include the share % offer and details of your expected investor exit route and timing.
The HMRC approval should be provided in 30 days from application. Assuming no problems there, and your video and pitch being ready, you will then get final approval from Crowdcube and can publish your pitch. Then you get up to 60 days live. After that it takes another month or so to complete the drawdown of funds from investors, the due diligence checks and the legal documents.
Because you don’t want to lose any of your “pitch” time of 60 days to Christmas, Easter or the August summer holidays, you probably want to time the pitch to go live in early January, April, May, June, September, October, rather than other months of the year. People are really not making investment decisions when they are away or have these things on their minds.
Second, you have to drive the process yourselves. The crowd-funding platform is not going to do much at all to promote your particular opportunity either within the site or externally. You have to create a viral campaign yourself using social media and PR of every possible type to hit while the pitch is live. Up to 50% of the investment will come from the people that are in your network and contacts and you drive to the pitch. This is why you don’t want to be doing this while people are doing Christmas, Easter and other holidays. You may have some business angels that are interested – get them to register and make their investment offers through the crowd-funding platform to stimulate interest and keep you top of the “recent investments” listing. Your target is to get to 35-40% of funding as soon as possible as this is the key threshold level from which most then go on to succeed.
Third, make sure that nothing in your pitch is likely to turn investors OFF. The following are the things that do this:
1. Lack of focus – management with other business interests; part time working
2. No identified customers
3. No sales experience in the management team
4. One man bands
5. Poor financial track record
6. A product or service that people have difficulty understanding or identifying with
7. A weak video that is just a boring talking head
There are more points in the Financing Tech Startups Presentation Handout from the talk I gave.
I hope that this is useful and that if you go for a crowd-funding pitch, it goes well for you.