The tech entrepreneur’s crowdfunding handbook | A definitive guide to crowd financing for UK tech start-ups Page 1 of 8

Crowdfunding has come a long way in recent years, from a left-field option for the more unconventional entrepreneur to being seen as a serious fundraising contender for high-growth companies.Not only is it fast catching up in popularity with some traditional finance options like venture capital funding, it’s also increasingly catching the attention of investors looking to broaden their portfolio.

If you’re thinking of using crowd finance to fund a tech project, this guide is for you. We’ll shed light on the crowdfunding industry, both UK and globally, and advise how you can increase your chances of success.

To make life easier for you, we’ve split the guide into six sections:

1. Crowdfunding: an overview2. The rise of UK crowdfunding3. Is crowdfunding right for you?4. Before you launch5. Optimising your campaign6. Life after crowdfunding: what happens next?

The tech entrepreneur’s crowdfunding handbookA definitive guide to crowd financing for UK tech start-ups

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Crowdfunding: an overviewUnless you’ve been hiding in a particularly disconnected cave somewhere, you’ve probably already heard a fair bit about crowdfunding. As the name suggests, it involves a large group of people collectively financing a new business or project.

But what separates crowdfunding from traditional financing options is that is involves raising only a relatively small amount of money from each contributor.

In other words: it may be easier to get 1,000 people to give you £100 than one person to give you £100,000 because both risk and capital are dramatically reduced for each individual in the former option.

Crowdfunding can be applied in any number of situations, from raising charitable donations to financing personal loans. But there are two types of crowdfunding that are relevant to the majority of tech start-ups:

➔ Reward-based – people invest in return for a non-monetary reward, usually in the form of the product or service they’re investing in. This is currently the most common form of crowdfunding. Popular platforms include Kickstarter and Indiegogo

➔ Equity-based – instead of non-monetary rewards, investors receive equity shares in your business and ultimately a percentage of your profit. Popular platforms include Crowdcube, SyndicateRoom and Seedrs

“What’s telling is companies are considering crowdfunding as their first choice to raise funds, rather than the last resort. And it’s not just start-ups – established brands have now turned to crowdfunding for the benefits a successful round brings.”

– Tom Britton, CTO and co-founder, SyndicateRoom

The rise of UK crowdfundingThere’s no doubt about it: crowdfunding is no longer the new kid on the block. It’s here to stay and it’s taking the investment world by storm. A recent report by Massolution suggests crowdfunding will overtake venture capitalist (VC) funding globally in 2016.

And the UK seems to be leading the charge. More than 1m people used crowdfunding platforms last year in the UK alone, according to a recent study by Nesta.

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And in its 2015/16 The Deal report, UK data-provider Beauhurst found that crowdfunding is now the most active investor type in UK high-growth company funding.

The report’s author writes: “Taking a step back, the biggest story for the market as a whole has to be the continued rise of equity crowdfunding platforms. This is the only investor type whose deal numbers increased by a significant amount (45%) between 2014 and 2015.”

All very promising so far, but let’s look at some more numbers from crowd finance market data analysts Crowdsurfer:

• 1,800 crowdfunding platforms globally• $18bn invested via crowdfunding in the last two years• 1-2 new platforms every day• 180 UK platforms

“We’re seeing more institutions getting involved in crowdfunding, either as investors or to raise money themselves. This is a sign of maturity – the industry is growing and trust is building. Within a couple of years there won’t be a single area that crowdfunding hasn’t touched.”

– Emily Mackay, CEO and founder, Crowdsurfer

Is crowdfunding right for you?Some ideas naturally lend themselves to crowdfunding more than others. The good news is technology projects tend to perform well compared to other categories.

Technology projects have raised the second-highest amount of funds on Kickstarter since the crowdfunding platform launched in the UK, and received the second-highest number of pledgers.

And in a 2014 government report on equity crowdfunding, technology companies were again found to have the highest number of investors and total funding.

So it’s safe to say crowdfunding is a relatively safe bet for tech start-ups.

Another point to consider is the type of product you have. Is it something people can see and touch? Not only does this make investment more enticing, it also allows you to quickly find out if there’s a genuine appetite for your product.

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Before you launchAs with many things in life, effective crowdfunding is largely down to preparation. Before you hit that launch button there are a number of things you need to do to help get things off the ground.

1. Get your prototype ready – unless you’ve invented an immortality pill, it’s harder to get people to invest in an idea than a real-life product. In fact, having a working prototype is mandatory for some platforms.

2. Set your campaign stats – how much money do you need? This is the point where you really need to do your sums – not just in terms of raising the right capital but also making sure you can actually fulfil your promise to investors

3. Create your visual assets – think like a marketer and make your campaign page look enticing. Include high quality images and videos of your prototype.

4. Launch your website – try to capture as much traffic as possible from your campaign page and direct it onto your own site. Make sure you’re capturing them with some fantastic content when they get there – this will help you start building a following early on, and also helps you get to the top of the search engines.

5. Contact the press – if you’ve got a genuinely original idea, or something that could impact people’s lives, the press may want to write about it. Getting the right media coverage can give your campaign a massive boost.

PRO TIP: “Crowdfunding platforms advise you to have 30-40% of your funding target committed prior to launching to demonstrate early interest in the campaign and entice investors. In our experience, that figure needs to be 80-90% commitment.” – Wil Benton, Co-Founder, Chew

Optimising your campaignCampaign page

➔ Make your title snappy, descriptive, and memorable. People should know roughly what to expect before they’ve clicked, but you have to make them click in the first place

➔ The top part of your page should make it crystal clear what your product is or does. This is your chance to hook investors in. If they’re interested, they’ll read on. If they’re confused, they’ll likely leave

➔ Include plenty of eye-catching imagery. Remember how people digest things online – they’re usually scanning the page for specific bits of information, so try to avoid big blocks of text and make the important information stand out

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➔ Don’t forget to celebrate past success! If you’ve successfully crowdfunded before, or if you’re raising finance for an existing or follow-up product, make sure you include any positive reviews or testimonials

➔ Remember, all platforms differ slightly, so spend time getting to know your chosen platform and optimise it accordingly

Video➔ Make it personal – tell investors who you are, what your story is, and

why you started this project

➔ Explain why you’re asking for investment and what you’ll do with the money

➔ Use this as an opportunity to hype up the rewards you’re offering

➔ Keep it short and snappy – cater for short attention spans and you can’t go wrong

“Take your time to create a succinct, well-produced crowdfunding video that tells your story and sells the business opportunity. We scripted, shot and edited ours in 36 hours, but we were working with a brilliant producer and editor so were able to turn it around quickly. It

became the focal point of our campaign page.” – Wil Benton, Co-Founder, Chew

Copy➔ Keep things clear and simple – use short sentences and give each

point or idea its own paragraph, ensuring you have plenty of lovely white space

➔ Avoid the ‘wall of text’ – imagine the reader scanning quickly down the page (studies show people read just 20% of a web page on average) and think about how you can grab their attention. We recommend using lots of descriptive subheadings and imagery to break things up

➔ When providing lots of information, use bulleted/numbered lists where possible (just like we’re doing now). It makes things much easier for the reader to digest

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PRO TIP: “It’s important to communicate effectively. Be clear, and present your story in an easy-to-understand way, removing industry jargon.” – Tom Britton, CTO and co-founder, SyndicateRoom

Campaign length➔ 30-45 days is roughly the length you should be aiming for, although

there are varying studies on what the specific ideal length is

➔ Your campaign should be long enough to gain momentum, but short enough to keep people engaged

➔ The last few days of your campaign are critical – when it’s nearing the end it creates a sense of urgency, which helps motivate people to act

PRO TIP: “Crowdfunding campaigns tend to run for around four or five weeks on our platform, although you’ll find others in the industry running campaigns for up to 12 week periods.” – Tom Britton, CTO and co-founder, SyndicateRoom

Rewards and perksCommon rewards include:

➔ A copy of the product you’re crowdfunding for

➔ Some kind of recognition – a non-physical reward, e.g. a pledger having their name mentioned in a book

➔ Experiences – e.g. inviting pledgers ‘behind the scenes’ to see how your product is made

➔ The important thing is to make sure the reward reflects the amount of money pledged. £250 for a branded pen is not likely to cut it!

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Life after crowdfunding: what happens next?If you succeed:

Keep in touch with your investors.

The moment they clicked to invest in your business, your relationship with them began. By giving them updates on developments and milestones you’ll build and maintain that relationship, strengthening your position for future funding rounds.

If you fail:Firstly, don’t beat yourself up. Even by simply launching a crowdfunding campaign you’re already several steps ahead of most would-be entrepreneurs.

The key here is learning, and you’ll learn more from the mistakes you made than you ever would from things going smoothly.

And don’t be afraid to approach experts for advice. Having a mentor who’s been there before can help you work out where things went wrong and plan for future efforts.

“The conventional wisdom is that you need one-third of the funds committed in advance to have a successful campaign. So if you want to raise £300k, make sure you have commitments for £100k up front. The crowdfunding sites will maybe bring in

another third of the funds, but you’ll need to work your network and contacts during the campaign to bring in the remaining third.”

– Charles Wiles, CEO and co-founder, Zzish

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And remember…

Crowdfunding alone, in our experience, is not a viable way of raising investment. It’s brilliant as a top up, and fantastic for raising your profile and generating PR interest, but it should not be used as a route to ‘easy’ funding.”

– Wil Benton, Co-Founder, Chew

“Crowdfunding requires hard work. Don’t just let a campaign go live on the platform and expect magic to happen. The more you put in, the more you’ll get out.”

– Tom Britton, CTO and co-founder, SyndicateRoom

“It takes a minimum of four months from reaching out to the crowdfunding sites until you receive the funds, usually more like five months, so start planning early.“

– Charles Wiles, CEO and co-founder, Zzish

“If you have a physical product, crowdfunding is a very good way of testing the market and getting direct feedback.”

– Emily Mackay, CEO and co-founder, Crowdsurfer