To finish off money month on The Right Stripes, we spoke to the team behind crowdfunding platform Seedrs, to find out how ordinary folk like you and me can raise equity funding to grow our businesses.
Can you tell us about Seedrs.
Seedrs was started in 2009 by Jeff Lynn, a securities lawyer from the US, and Carlos Silva, a Portuguese tech expert. They met while studying at the Oxford Said Business School. It was Carlos’s idea as he was inspired by what peer-to-peer lenders like Kiva and Zopa had accomplished and wanted to do something similar for startups. They both recognised that financing startups had to be about equity rather than debt, so their challenge was to find a way to do “peer-to-peer equity”. The business evolved out of that challenge.
After a few years of working through the regulatory process to become authorised by the Financial Conduct Authority – Seedrs was the first such platform in the world to receive regulatory approval – Seedrs launched to investors and startup entrepreneurs in the UK in July 2012.
Since then, Seedrs has evolved into a tool for businesses of any stage and sector, to raise investment from investors in more than 30 countries. Now an average of €2 million is being invested into an average of 10 businesses per month. From early stage businesses like Mike’s Fancy Cheese, an artisanal cheese makers who raised £80,000; and Rare Pink, an online jewellery company that raised £120,000; to later stage businesses like Maily, an email app for kids that raised £352,000; and Minicabit, an app for booking local minicabs that raised £158K. Many, like Future Ad Labs, Satago, Landbay and Wriggle, have gone on to grow amazing businesses, win prestigious awards and raise further growth capital after funding early rounds on Seedrs.
In September, Chapel Down, a winery and craft brewer based in Kent became the first publicly-traded company to raise investment through crowdfunding. The company raised £3.95 million through Seedrs, together with an institutional placing from customers, professional investors and wine-lovers throughout Europe. This demonstrates the wide-reaching impact of equity crowdfunding, and we see no reason why the next big IPO couldn’t involve a platform like ours.
What is equity crowdfunding?
Equity crowdfunding makes it possible for people to invest as little or as much as they like into businesses that they choose, in exchange for shares, online. And it is an efficient way for ambitious entrepreneurs to raise investment from a wide range of people, like: friends, family, customers, community, angels and even VCs, online. It’s a much more transparent, democratised, and engaging way for people to invest in growth; and it is a much more efficient, creative, strategic way for entrepreneurs to raise investment.
Who can raise funding using Seedrs?
We’ve seen a real shift in the stages of businesses raising capital on Seedrs. We started as a platform for early-stage entrepreneurs to raise up to around £150,000, but this has evolved to include later-stage businesses looking to raise larger investment amounts.
Who are the investors?
The people who invest on Seedrs are varied. They’re now from almost every country in Europe from a variety of professional occupations and invest varying amounts (from £10 with an average of £2,000). We even have angel investors and venture capitalists investing through the platform, who invest much larger sums, but on the same terms as the other Seedrs investors.
There’s a real mix of motivations among investors. Some are interested in developing
a wide portfolio of dozens – even hundreds – of businesses and see this as an exciting asset class. Others only invest a few times in businesses that look interesting or matter to them. And because we’re a really efficient way for friends and family to invest, most entrepreneurs get them to invest in their campaign too.
What sort of businesses raise the most amount of money?
Businesses that tell their story in a compelling way tend to catch the attention of investors. This means having a clear proposition, explanation as to why the team is the best to grow the business, well-researched target market and marketing strategy and engaging video. Crowdfunding platforms are simply tools for entrepreneurs to use to engage with their crowds, so entrepreneurs have to have hustle to get the most out of the platform. You can’t just sit around and expect people to invest in your business (which, to investors, is a high-risk investment) – you have to find them and engage with them. Entrepreneurs that do that the best tend to run successful campaigns.
How much capital can one typically expect to raise?
It depends on the stage of the business, but the average on Seedrs is around £200,000. Businesses have raised as little as £9,500 and as much as £3.95 million though. It depends on what traction you have so far and what you need the money for.
If you don’t reach your target, do you get to keep the investment raised?
No, Seedrs operates an “all or nothing” model, so you either reach, or exceed, your target, or you don’t and investors get their money back.
What is the process involved? What does one have to do?
It’s really simple. Entrepreneurs simply sign up and create a pitch, submit it to our team when they’re happy with it, and plan a marketing campaign to start when their pitch goes live. Entrepreneurs have up to 60 days to reach their target or investors get their money back. If a campaign is successful, our team does all of the legal work around the investment including company structuring and drafting shareholders agreements, and acts as the nominee on behalf of all of their Seedrs investors. This means that the business gets all of the benefits of having a lot of shareholders, like marketing support, legal tips, accounting gurus, beta testers and potential customers; but we act as the sole legal shareholder that the entrepreneur reaches out to for things like consents when a VC comes to invest at a later stage.
How much equity does one typically need to offer in return for funding?
It really depends on the business stage, traction, sector, etc.
If you are offering ‘perks’ in return for investment – what sort of perks are most attractive? What works and what doesn’t?
If you’re looking for investment, perks can muddy the waters a bit. Investors don’t like the idea of stripping value from the company by being offerred perks. That’s one of the biggest downsides of raising growth capital through rewards based crowdfunding – it strips a lot of resources and time from the company, leaving little for actual business growth.
Do you have to create your own social media campaign around your pitch to drive people and interest? What if you don’t have a large network of contacts to help you get the ball rolling?
Equity crowdfunding is an opportunity to get your ideal customers and evangelists bought into your company. Good entrepreneurs don’t sit around waiting for people to stumble across their campaign; they get out there and shout out about what they’re doing. Even if your friends and family can’t invest much, everyone has a network they should be able to reach out to with a bit of preparation. Influencers, bloggers, journalists, social media mavens within your industry – get these people bought into what you’re doing and get them to help you spread the word. Even Kickstarter has a stat that around 84% of backers come from social media links, not just browsing around Kickstarter.
Remember, investors invest in teams. If you can hustle and show how passionate you are, that will get people excited about what you’re doing.
How much detail should your pitch contain? Do you need to detail what the funds will be used for?
It’s about telling your story, not trying to wow people with over-ambitious projections or sharing your secret sauce. One of the best things about equity crowdfunding is that it is a really transparent form of capital raising. Entrepreneurs should share as much as they can with potential investors to help them reduce their uncertainty.
Do you think it’s best to have an advisor to help you through the process?
Not at all! That is one of the benefits of equity crowdfunding – you don’t need an advisor. You know your business better than anyone, just tell your story, do your research and submit a campaign.
What are the common mistakes that people make with their pitches?
There are a variety of things we’ve seen that may influence the outcome of their investment campaign.
High valuation – Many businesses overvalue themselves. The crowds catch on to this and will not invest in a company that has a high valuation but low traction.
No video – People aren’t likely to meet you before investing, but they do want to know that they can trust you. Show them the whites of your eyes by talking a bit on a well-produced video pitch.
Don’t promote their team – Teams are cited as the most important influencer when investing in businesses. Show off your team and why they are the best fit to propel your business to success with photos, bios and cameos in your video.
Don’t have demonstrable traction or addressable market.
What are your crowdfunding top tips?
Success in equity crowdfunding is as much an art as it is a science, and you never know where the crowds are going to see the most potential. But, there are a few things that increase a business’s chance of success.
You’ve got to have an engaging, well-produced video.
Think about who you want to be an investor and engage with them where they are most likely to be. This includes blogs, social media, events, websites, media, etc. Once you find where they are at, find the best ways to catch their attention and draft messages that will get them to click through to or share your campaign.
Be responsive and engaging to anyone who asks you questions or comments on your campaign.
Don’t ignore offline channels for engaging with potential backers. While campaigning you should be everywhere to meet angels and other people who could be interested in investing.
Think hard about your valuation – the crowds are looking for a good deal. Put yourself in their shoes – would you invest in that valuation with your traction?
You may also like our other Crowdfunding features