Using equity crowdfunding to finance business growth€¦ · business finance is now a genuine...

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Using equity crowdfunding to finance business growth

Transcript of Using equity crowdfunding to finance business growth€¦ · business finance is now a genuine...

Page 1: Using equity crowdfunding to finance business growth€¦ · business finance is now a genuine option for many businesses. This guide will equip budding crowdfunders with essential

Using equity crowdfunding to finance business growth

Page 2: Using equity crowdfunding to finance business growth€¦ · business finance is now a genuine option for many businesses. This guide will equip budding crowdfunders with essential

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Beyond the banks

FOREWORDcrowdpower

Darren Westlake and I,the co-founders ofCrowdcube, are both

entrepreneurs who havecrucially experiencedfirst-hand how

difficult it is to raisefinance – and we’re

passionate aboutdoing something

extraordinary to change the status quo.That’s Crowdcube’s raison d'etre; tohelp entrepreneurs, like you, raisefinance.

While the rest of the world wasgalloping along embracing theinternet, e-commerce and socialmedia, the mechanisms thatfinanced many of these businesseswere reluctant to evolve, adapt andchange themselves.

It’s curious that it took two people, atechy with a great idea (Darren) and amarketer (me), without any background infinancial services to transform an age-old industry.But that’s what good entrepreneurs do; they see thingsthat others don’t and develop solutions to problems thatothers merely accept.

Since we launched Crowdcube in 2011 – coining thephrase ‘equity crowdfunding’ – 55 businesses havereached their funding targets raising £9.5 million betweenthem.

Growth has accelerated in the first half of 2013 with£4.4 million raised between January and May

compared to £2.7 million for the whole of 2012.That’s an increase of over 500 per cent when

compared to the same period in 2012. Harnessing the power of the crowd to raisebusiness finance is now a genuine option for

many businesses. This guide will equipbudding crowdfunders with essential

advice and tips on how to create andexecute the perfect equity crowdfundingcampaign.

The number one piece of advice thatI can offer is that your crowdfundingcampaign does not start when yourpitch goes live; it started last week, last

month, even last year. If you plan to raiseequity finance for your business then you

should begin to make friends, family,customers, suppliers and existing investors

interested in investing as soon as possible. That way youcan hit the ground running when your pitch is finallypublished and instantly attract the attention of otherinvestors. Best of luck! g

LUKE LANGCO-FOUNDER, CROWDCUBE

Hit the groundrunning when your

pitch is published andinstantly attract

attention

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contentscrowdpower

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INTRODUCTIONBy Hunter Ruthven, Editor, GrowthBusiness.co.uk

How to put together a pitchCreating a professional first impression

Investor profile 1Harald Nieder

Investor profile 2Georgina-Kate Adams

Business case study 1Rob Symington, Escape the City

Business case study 2Andrew Wordsworth, E-Car Club

Business case study 3Barry Laden, East End Manufacturing

Business case study 4Alex Kammerling, Kamm & Sons

Handling communication post deal Balancing the task of handling hundreds of investors

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Going up

introductioncrowdpower

The $93,000 that wasrecently raised byTurkish political

protesters to run a full-page advertisement in theNew York Times

demonstrates the powerand influence that the crowd

can have not just insupporting projects, but also

movements and causes.Crowdfunding as a concept has evolved from the

early dawn of the internet when bands used theirsupporters to fund new records, through thedays of web-enabled giving for charity, to thefoundation of Kickstarter – whose mostnotable success came when smart devicePebble Watch raised over $10 million inlittle over a month.

However, it is the growth in equitycrowdfunding which can perhapshave the biggest overall impact onsociety. Start-up businesses areno longer at the mercy of bankmanagers – they can now utilisethe support of burgeoningcustomer bases to fueldevelopment.

Figures from NESTA show that £200million was invested throughcrowdfunding in 2012, with a significantamount of that coming through the equity route. With aslittle as £10 required to gain a stake in a business,

crowdfunding has opened the door to a huge crowd ofpeople who have had their investment activity limited tostocks and shares because of the barriers to entryassociated with being a business angel.

Already a number of businesses have raised over £1million by putting a pitch online while backers, fromseasoned angels to first-time investors, come together toput their hard-earned cash into businesses that areembracing the internet to find capital.

But as with any investment, getting the pitch rightremains a fundamental challenge for businesses hopingto raise money through the equity crowdfunding route.

Going up against thousands of other opportunisticventures means that a pitch needs to stand up and

demand the attention of the armchair dragonswho are looking to back the next big thing.

To find out the best way to pitch a business,we’ve spoken with companies which havesuccessfully raised up to £600,000.

They’ve given their tips on thefundamentals of a pitch and what cango wrong during the fundraisingprocess.

This guide also looks at theimportance of striking a balancebetween the amount of capital requiredversus the amount of equity being

given away.It’s a new and evolving process and with

each successful fundraising we learn moreabout what kind of sectors appeal to investors,

what they demand in terms of communication and howthey expect an exit to be achieved. g

HUNTER RUTHVENEDITOR, GROWTHBUSINESS.CO.UK

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There’s nogetting away fromthe buzz that is

gathering aroundcrowdfunding

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the pitchcrowdpower

For any business going down the crowdfunding route,the hardest part will be convincing both established andfirst-time investors to part with their hard-earned cash.

Statistics from reward-based platform Kickstarter paint acompetitive picture, with only 44 per cent of campaigns reaching

their funding goal.Getting your pitch right, and right at the first time of asking, is

pivotal to getting a fundraising bid off to the best possible start.Luke Lang, co-founder of Crowdcube, gives his tips on strikingthe right balance. g

Creating the perfect pitch

logoThe first exposure any investor will have to a possible investment is the logo. Making sure your business has a quality logocan make a good first impression and set the pitch off on the right footing.

Equity vs. fundraising totalThese two figures, when combined, will reflect the valuation you have placed on your venture. It’s important to come upwith a realistic valuation, as investors will often become disenfranchised when they see a valuation of a business is £5million, despite the fact it is still a fledgling start-up.

EIS/SEIS and share optionsInvestors in today’s climate are looking for the maximum return possible from their business backing, and the EnterpriseInvestment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) provide important incentives such as individualincome tax relief and exemption from capital gains tax. Companies considering the crowdfunding route should make sureto have early conversations with HMRC to find out if EIS or SEIS eligibility is available. The vast majority of ventures backedthrough crowdfunding platforms meet the required criteria and certification will be an important stamp for an investmentpitch. Choosing between offering prospective investors A or B shares will also affect how much influence and decision-making power they will have.

Company foundersPart of what investors buy into is the entrepreneurial story – the route they have taken to get their business to the state it isin today. Getting the personal element of the pitch established provides a human element to relate to – after all many of theinvestors putting their capital into crowdfunding platforms are business builders themselves and want to hear about theentrepreneur.

The video ‘elevator pitch’Once an investor has been enticed by the company’s branding, equity offering and basic back story, a video provides anopportunity to partake in a little elevator pitch and sell the business in a more interactive way. This part of the pitch is cru-cial and allows a business to tease people into finding out more. As with the logo, ensuring that the video is professionallyput together and engaging is pivotal.

Questions and answersA question and answer section allows for direct communication between interested investors with queries and theentrepreneur behind the business. It also forms an important part of the ‘crowd’ ethos as investors bounce comments offeach other and discuss the pitch’s merits. It’s important to stay on top of the flow of questions and endeavour to answerthem in a quick, clear and concise fashion. Those posing questions are possible investors in the business, so a promptresponse contributes a great deal towards their feeling of the business.

RewardsOn top of the equity offering available, adding additional rewards provides an attractive crossover with traditionalcrowdfunding. It’s a value-add, particularly for the lower-end investors who can get some reward and return on aninvestment sooner rather than later.

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SEE NEXTPAGE FORDUMMYPITCH

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the pitchcrowdpower

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HaraldNieder

INVESTOR PROFILEcrowdpower

It was through an arty friend that I discovered whatKickstarter was doing and set out to find if anythingexisted for the equity investing space. The alternative

to getting into backing early-stage companies wouldhave meant putting in a lot of money, and I felt that thelevels in crowdfunding were much more attractive.

I’m always interested in how start-ups present themselveson crowdfunding platforms – how they are perceived by peo-ple. As an investor, I look at the business model on showand the entrepreneur behind the venture.

I like looking at the different blogs that are linked to,what kind of questions are being asked of entrepreneurson the forums and then analysing how they react tothat.

My interaction with the business owners happenson a more personal one-to-one basis. I find it is amore efficient way of doing things as a lot ofpeople are just putting up questions to im-press others.

My rule of thumb is: how much do youget for £5,000? If someone only gives you0.1 per cent of the company for £5,000,it’s not immediately interesting. You getthe feeling it could be expensive for a rea-son.

I definitely see this as a much riskierform of investing, but I’d only put in anamount of money which I could afford to lose.In some cases I am looking for voting rights, butthat isn’t much use if you’re only putting £50 in.

GOOD VS. BADBranding of a business is a really important element. As moreand more pitches come online across different platforms, agood logo can help an entrepreneur and their business stand

out. On a couple of occasions it has put me off from delvingany deeper, as I need to be impressed at the start to dive inand have more of a comprehensive look.

This was particularly true for one of my investments [saladdressing company Righteous], which I felt had really solidbranding. It is in a bit of a niche market, but digging a little bitdeeper I found the entrepreneur had a lot of experience andwas well on her way to building a business in a gap that had-n’t been filled.

I like the fact that with these kind of companies I am get-ting in early and have the opportunity to get a good price

and have an influence over how the business grows.Exit strategy is an issue which has been often dis-cussed with crowdfunding pitches, but for me, pretty

much all of the ones I have seen are too optimistic.A few early-stage companies I have looked at

are talking about a three-year exit, which is abit unrealistic. Whatever strategy is put in

place is just random numbers. But I don’tthink that’s too much of a problem as abit of confidence doesn’t harm.

Lots of them have exit potential,through a sale or even IPO, but I know Iam going to be invested in them for along time.Once I’ve made a commitment to a

business regular updates are necessary tokeep me abreast of what is going on. Despite

the fact that they are all busy making a success ofthe venture, all of my investments do this regularly

through media like newsletters.The facet of crowdfunding that makes it more fun and in-

teresting than conventional stock and shares investing is thatyou’re able to follow your companies through Twitter andFacebook to find out how they are doing. g

my interac-tion with the

business ownershappens on a more personal one-to-

one basis

Age: 37Profession: Physics background, now in financial servicesInvestments through crowdfunding: Crowdcube, E-Car

Club, Righteous, Brupond, ineed.co.ukOther investments: Personal stocks and shares portfolio

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Georgina-KateAdams

INVESTOR PROFILEcrowdpower

My first exposure to crowdfunding was writing aboutit as a financial journalist, and I became interestedin the funding mechanism. I constantly had busi-

nesses asking me, 'How on earth do I get funding', and tome crowdfunding seemed like a really exciting solution.

The craze that Dragons' Den was creating around start-upbusinesses and funding fitted in well with this and created agreat opportunity, for those that wouldn't have previously beenable to get involved, to dip their toes in.

For me, like most people, I'd seen a lot of businesses comeand go on the show and thought: I'd like to invest in some-thing.

Incidentally, my first crowdfunding investment was actu-ally in Crowdcube when the business closed its firstround worth £300,000 in late 2011. I’ve also subse-quently taken part in the platform’s second roundwhen it raised £1.5 million earlier this year.

The attraction, and reason for investing asmuch as I did, was that I wanted to feel asense of ownership. You can put in as little as£10 but how much of a role will you have? Ithought it was really important to have atangible amount so made sure, through myfirst investment, that I had a 0.1 per centstake.

WISH LISTWhen I'm looking at a possible business in whichto invest, I want to see some integrity in it. The com-munications need to be quite professional and transparentwithout too much spin.

I look for a company which has found a gap – not just anotherrestaurant! Personally, I also like to see an element of social pur-pose. Start-ups raising money through equity crowdfunding havean opportunity to sustain themselves by turning to customers

and not ending up in a headlock with the banks.It's a humanising process, and gives people another option –

considering the banks are so restrictive these days. This struck astrong ethical chord with me and is part of the reason I like theprocess.

When I'm scanning through businesses looking for crowd-funding capital I like to see an open-door policy being embraced.I wouldn't invest in a company that you send an email to andnever hear back from. My investment, Crowdcube itself, I com-municate with in person, on the phone, by email and on Face-

book and Twitter – so on all levels.

ENGAGING INVESTMENTI'm 26, so am a young investor. Back when I investedin Crowdcube I was 24 and in my first graduate job. I

didn't really have any disposable income and was-n't necessarily looking for investment opportuni-

ties. I haven't felt sufficiently compelled toinvest in anyone else but I do look at pitchesand some of them are definitely very tempt-ing.

Crowdcube was an example of a busi-ness which I could tell was going to ex-plode and everyone was going to want apiece of it. If I saw another fantastic idea, a

really big growth opportunity, I would defi-nitely invest again.

The rest of my money is in savings accounts,stocks and shares and bonds. It's my childhood sav-

ings that has always been organised by my parents. It feels alot less tangible than my crowdfunding activity, as I have lessownership of that money.I like the personal involvement you get with investing in start-ups.You can drop the founder a line and feel proud if they get a greatpress article. g

The communicationsneed to be quiteprofessional and

tranparent, without too much spin

Age: 26Profession: Marketing manager for handcraft business inSwaziland

Investments through crowdfunding: Crowdcube (twice)Other investments: Personal stocks and shares portfolio

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ROB SYMINGTON, ESCAPE THE CITY

case studycrowdpower

Our first £10,000 investment in the business came fromour savings, and was spent on the first website.Further funding came from another £10,000 of

savings and a £20,000 bank loan, and that got us all theway to two and a half years in, at which point we raised theCrowdcube investment.

Prior to discovering crowdfunding, we had hit the angel andVC circuit in London in our attempt to raise £600,000. Therewere about eight VCs in the capital who were worth speakingto at that level of investment. We had many meetings with VCsbut nothing conclusive came of it; we weren't getting anyno's, but certainly not getting any firm yeses.

During that process, we read about Crowdcube, anddecided to meet with the founder. After learning moreabout the concept we realised we liked what they weredoing and saw a fit with our brand.

In May last year, we got an offer from a VC just atthe time we decided to go for Crowdcube. Initially,we had sent an email to our membership asking ifthey would be interested in investing in the company.We got a huge response, with 2,000 peopleexpressing interest. We only needed about 10 per centconversion of that to raise the money, so we decided to gowith Crowdcube.

We gave away 20 per cent for the £500,000 which was thesame as the VC offer. Overall, going with the crowdfundingoption felt more risky but also more exciting and attractive.

THE PITCHWe had spent the previous four months polishing the decks forVCs, with endlessly revised PowerPoint presentations on whywe were a good investment opportunity. It's a never-ending

refinement process. When we got to

crowdfunding however, thepitch was now for ourmembers. The crowd angle ismore of a hearts and minds pieceas well as a pure investmentproposition, so we told a story rather thanjust presenting the financial nuts and bolts. As well as a videowe presented a single page financial model. We also made anFAQ, since a lot of the crowd investors were first-timers and it

was easier than answering all their emails individually.We got to £500,000 in ten days or so and, because wewere oversubscribed, we put it up to £600,000. The

money was to be spent almost entirely on salaries,mostly developers. Advisers in accounts and law,online subscriptions, hosting and offices alsoneeded paying for.

We were slightly different frommost companies raising money

through crowdfunding in that wehad our crowd coming with us.

Crowdcube gave us a private URLand the opportunity wasn't availableto the rest of the investmentcommunity. From thatperspective we wereeffectively using the fundingoption as a legal vehicle toraise the funds and less asan actual source of thefunds. g

TIP 3Be transparentwith info and

answers

TIP 2Appear

trustworthy

Amount raised: £600,000When raised: May 2012Investors: 395

Equity: 20%Sector: Online recruitment

TIP 1Tell astory throughyour pitch

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ANDREW WORDSWORTH, E-CAR CLUB

case studycrowdpower

Once our Crowdcube pitch was live it gathered interestquite quickly; on the first day we got a £15,000 investorstraightaway. By the end of the first week we were at

60 per cent funded, but then it slowed down a bit, withfunds dribbling in gradually. We picked up a few £1,000-level investors and the occasional £5,000. That went onfor six weeks and we finally got another £15,000investor which meant that it closed a week later.

We finished with 62 investors, with four of thembeing ‘A’ shareholders. Anyone who invested over£15,000 became an ‘A’ shareholder, and theremaining 58 are ‘B’ shareholders, but we wantedall shareholders to have voting rights. Somebusinesses have ‘B’ shareholders who don't have

voting rights, but we thought we would be moremarketable if they did.

Crowdcube doesn’t tell you if you have a good or abad business, its job is to make sure you, as an

entrepreneur presenting your business to them,are disclosing everything they require. I’m

supportive of that; they're not VCs. Thewhole point of crowdfunding is you're

getting away from people who havenever run a business but who seem tothink they can judge where a companyis going or not. I feel the crowd isbetter equipped to do that.Some people say ‘armchair investors’

on crowdfunding platforms are largelymugs who don’t know what they’re doing, but I

think that's highly insulting. There are some very sophisticatedpeople who have put money into our company and have

adopted a portfolio strategy. Effectively they have enjoyed thebenefits of disintermediating, of not paying fees to anyone.Until you have dealt with these people I don't think you can

have an opinion on their level of sophistication. We raised £100,000 on the site, which was part of abigger seed round. Overall we raised £400,000 or so,

to take us to 20 cars on the road. Now, we're gettinga lot of enquiries from angels, and people whowouldn't touch us beforehand are now [naturally]interested.

EIS AND REGULATIONWe are one of the 2 per cent or so of

businesses on Crowdcube that doesn’tqualify for the Enterprise Investment Scheme

(EIS).If you don't qualify for EIS, think again

about crowdfunding, because investorscan’t qualify for the tax breaks. If weknew what we know now we wouldprobably have picked a differentbusiness to start with.

Also, FSA regulation has been a bigtalking point for Crowdcube. Thecompany wasn’t FSA-regulated whenwe first registered interest in theplatform. We held off closing the deal for amonth or so until regulation happened and now enjoy thebragging rights associated with being the first regulatedequity-based crowdfunding investment in the world. Thedegree of protection both we and investors get has takensome of the burden off the companies on the platform. g

TIP 2Have an

identifiableproduct

TIP 1

Be EIS-able,

don't apply

if not

TIP 3The

Entrepreneuris key

Amount raised: £100,000When raised: March 2013Investors: 63

Equity: 20%Sector: Car rental

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BARRY LADEN, EAST END MANUFACTURING

case studycrowdpower

Istarted my company from a cautious perspective witha modest factory in the East End, but after a fewmonths of supplying various small clients I noticed

that larger customers were put off by the small size ofour operation. I realised I needed to raise £150,000 toexpand our factory and buy more machinery to scale up.

I had read about crowdfunding in the financial pages of atrade magazine. What's interesting about the process is it'snot some sort of easy alternative to banks or other funding,you still have to have an excellent pitch, robust financialsand a super business plan for it to be attractive to investors.

In our video pitch, it was key for me to tell the story ofwhat I was planning to do but also what I had already done.I included a small clip of Boris Johnson launching the factoryand also a film of Prince Charles giving me my MBE which Ireceived for services to the fashion industry. These types of

things help to validate the pitch and appeal toinvestors. Also, investors recognise my desire to

bring manufacturing back to London from the FarEast, which is a powerful hook.

Valuing a relatively early-stage business isnever an exact science. The overall

valuation of around £750,000 I felt wasanalogous to where we would be in

the first year of trading in the newpremises, and a smallish multiple ofthat in terms of profits.

Some say that if a pitch getsfunded reasonably quickly you

know the valuation is about right,and we were funded within eight days.

The money really piled in, with 95 per cent coming inthree days or so. Some entrepreneurs trying to raise

money via crowdfunding are valuing businesses at £1million plus and struggle to garner interest. Many of

them need to think about what they’re doing. I do not believe shareholders should just paymoney in and feel they won't be

contributing; an ongoing relationship isimportant. On that point, right from thestart, I was adamant that all shareswould be ‘A’ shares, with full votingrights. Many of the pitches divide theirshares up but I don't agree with that. I

think all shareholders are important andhave the ability to contribute, even if it's just

once a year at an AGM.

AN EXIT STRATEGYIn life, there is always going to be an exit,whether that is in business, or relationships,or whatever. In my case I have considereda future flotation on one of the smallermarkets. I’ve had some investorssaying if it's as successful as theyhope it will be, they’ll be looking tocome back in and benefit fromshares if the company floats.We have 71 investors whopotentially could be our earlyinvestors into an IPO, which isexciting. g

TIP 2

Get robust

financials

TIP 1Have a

killer video

TIP 3No chinks

in businessplan

Amount raised: £150,000When raised: April 2013Investors: 72

Equity: 20%Sector: Manufacturing

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Alex Kammerling, Kamm & Sons

case studycrowdpower

We had been looking for finance for aboutten months before we secured it. Westarted with people we knew and

friends of friends, and also presented at theLondon Business School to a room full ofangel investors which brought us moreinterest – although no deals. We must havehad around ten to 15 serious meetings,but no one offered anything decentenough.

Before we raised the first round, we hadnever heard of equity-basedcrowdfunding – although we knew and likedthe Kickstarter [reward-based] model. Whensomeone mentioned Crowdcube we thought itwould be an ideal platform to place the brandwhile we were searching elsewhere, and we didn't have

anything to lose by trying. We didn't realise quite how good a 'shop window'

crowdfunding was and it has brought us a lot ofpress and external investor interest. For the first

round, people started investing immediately,although we had to push pretty hard to break

the 60 per cent (of funds achieved) barrier. Ittook about eight weeks to be fully funded.

One of the good things aboutCrowdcube is that because of thesite's forums, questions were comingin about certain aspects of mybusiness. People would give their input

and we would have ready-made ideasto change things as we went along. Their

feedback contributed to making the business plan watertight.For the second round, we had to film another video. It was

slightly more generic about the brand and more focused ongetting investment, with me effectively pitching to the cameraand discussing financials. However, I did feel it was a good

way of bringing the brand to life.For me, the video is the pitch. If an investor likes whatthey see there they will then look into the business a bitmore on the financial side and do their own duediligence.

The second round of funding was a greatdeal easier than the first. We had almost

18 months of sales behind us plus a stackof great press cuttings, endorsements and

bar listings so it wasn't nearly as painful.We initially contacted our original investorsof which 23 per cent re-invested in thesecond round, the rest were new.Whereas the original round took twomonths to fully fund, this round tookapproximately five weeks.

The big difference between thetwo fundraising rounds was theamount of red tape we encounteredthe first time round. It was a learningcurve for everyone involved, but I get the feeling all of thecreases have been ironed out.

We are an example of a company that has raised more thanone round of funding through the process and I believecrowdfunding can work for a whole company’s lifespan. If weneeded to go back to it to raise more money, we definitelywould. g

TIP 2Answer any

and every

question

TIP 1

have a Water-

tight business

plan

TIP 3Use socialmedia togenerate

buzz

Amount raised: £530,000 – £180,000 for first round, £350,000 for secondWhen raised: Jan 2012, Jan 2013Investors: 135 total (85 after first round)

Equity: 23%Sector: Food and beverage

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Comms post dealcrowdpower

Handling communications once the deal closes

With investors already enthused enough to put theirmoney in, businesses then have the opportunity to

use them as brand advocates as well as potentially liningthem up as return backers.

While having hundreds of enthusiastic shareholders can begreat for a business, communicating with them andmaintaining the excitement they first demonstrated whenbacking a business can be a difficult task.

Escape the City’s Rob Symington enjoys the process andalways makes sure to email his backers when the companyhas something interesting to say.

‘We send out one big annual report which covers theperformance during the previous year and the plan for thenext 12 months,’ he explains.

‘One of the things people have invested in is the story andjourney, so it doesn’t cost much for me to sit down on aFriday and say we’ve got a new release going live.’

Despite keeping his investors updated frequently, andoffering the same ‘B’ shares as he possesses through the£600,000 fundraising, Symington and Escape the City didnot provide voting rights when they raised money viacrowdfunding.

‘Having 395 yes or no answers on individual decisionswould be quite a hindrance on running a business,’ he says.

E-Car Club’s Andrew Wordsworth believes in the value ofhis shareholders. ‘If someone has taken money out of their

own pocket and is putting it into a business, to say they areslightly stupid and don’t know what they are doing isinsulting.

‘From our communications we have with investors, thereare some very sophisticated people who have put money intoour company and have adopted a portfolio strategy.’

Voting rights is something that Wordsworth and E-Car Clubwanted all shareholders to have. With that in mind, the pitchoffered those acquiring ‘B’ shares a say in how the businesswould be run in the future.

‘The key difference between those shareholders [‘A’ and‘B’ shares] is around pre-emption rights. For new shares, ‘A’stakeholders can continue to invest to maintain their equitypercentage, but there are certain restrictions on them interms of selling them.

‘‘A’ stakeholders have to sell shares to other ‘A’ holdersfirst, while those with ‘B’ versions can sell to whoever theywant,’ he says.

ENGAGEMENT FACTORWhile many shareholders are investing in companies for thefirst time, statistics from Crowdcube show that thosesupporting start-ups through its platform are committing anaverage of £2,427. Crowdcube also finds that some 69 percent of backers are self-certified as high net worth or

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EXISTING FAN BASE - ROB SYMINGTON'S BACKERS WERE AL-READY MEMBERS OF THE ONLINE RECRUITMENT SITE

FILLING UP - SHAREHOLDERS AT ECO VEHICLE BUSINESS E-CARCLUB ARE TREATED WITH RESPECT IN THE HOPE THEY'LL TOPUP THEIR INVESTMENT SOME DAY

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Page 15: Using equity crowdfunding to finance business growth€¦ · business finance is now a genuine option for many businesses. This guide will equip budding crowdfunders with essential

Comms post dealcrowdpower

Handling communications once the deal closes cont.

sophisticated investors, while the percentage that haveinvested multiple times stands at 19 per cent.

With such a high number of high net worth andsophisticated investors getting involved and making multipleplays, businesses choosing the crowdfunding model will begaining backers who will know what to expect from theirshareholding.

Alex Kammerling, of Kamm & Sons, has raised twobatches of capital and now has 135 stakeholders.

The ginseng alcohol business likes to remain proactive,Kammerling says, engaging its investors on multiple levels.

‘We had an event recently where we invited everyone tocome along to a London bar where we made some cocktailsand told them about the plans we had,’ Kammerling adds.

‘We introduced them to the new team, offered themdiscounted stock and got them enthused really.’

While Kammerling is keen to harness the power of hisshareholders, he says that the business has kept its boarddown to five people. ‘We don’t want to be revealingeverything,’ he admits.

HANDS ONFurther research conducted by Crowdcube has revealed thatits members want to be direct shareholders.

Luke Lang says, ‘This is as much an emotional play asreturn on investment and people like the idea of owning

shares in a company and getting a shares certificate.’Crowdcube has made sure that companies raising money

through its platform are not completely left to their owndevices once the pitch has been closed. With the money inthe bank, successful businesses are then introduced to alegal firm, which can represent them. The crowdfundingplatform also provides an investor relations portal, whichallows companies to keep investors up to date through alocked-down Q&A forum.

Lang adds, ‘This is really important for the company thathas done the fundraising as investors are assets. They canbe brand advocates and also might be return investorsfurther down the line.

Barry Laden and his business, East End Manufacturing, arealso pioneering the brand engagement that Kammerling hasattempted to instil at his business.

‘I do not believe shareholders should just pay money inand feel they won’t be contributing – an ongoing relationship

is important,’ says Laden.‘I’ve personally emailed all

of our shareholders to saythank you for investing andto let them know that weare bringing forward aplanned opening of a newfactory due to the speed ofthe fundraising.’

A factory visit has alsobeen pencilled for beforechristmas so thatshareholders can see inperson what they’veinvested in.

‘I think all shareholdersare important and have theability to contribute, even ifit’s just once a year at anAGM,’ Laden explains.

Through East End Manufacturing’s £150,000 fundraising, itsecured £50,000 from one backer. That investor is nowsitting on the board and will, Laden says, bring ‘valuablesupport and advice’.

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ONE DRINK OR TWO? - KAMM & SONS HAS HOSTED EVENTSWITH INVESTORS TO KEEP THEM INTERESTED IN THE PRODUCT

EAST END MANUFACTURINGWILL BE SHOWING SHAREHOLDERS AROUND ITSNEW FACTORY, WHICH WASOPENED BY BORIS JOHNSON

Page 16: Using equity crowdfunding to finance business growth€¦ · business finance is now a genuine option for many businesses. This guide will equip budding crowdfunders with essential

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