Can my tech company raise money via crowdfunding?
Our guest author this week is Jes Bailey is an expert in crowdfunding. She helps entrepreneurs raise money for their businesses and projects and has an amazing 80% success rate in getting the funding.
Crowdfunding is the science and art of getting as many people as possible to fund your project.
We’ve all heard of the big names in crowdfunding from BrewDog and Mindful Chef to Monzo and Adzuna. In general, it is easier to crowdfund a food/drink business, because everyone loves food and drink, but tech companies can crowdfund too. It’s harder, but it is not impossible.
So how can a tech company make crowdfunding work for them?
First, you need to think carefully about how much you want to raise? If it’s over £100k then you need to think about equity crowdfunding. Less than £100K – then it is well worth considering rewards crowdfunding.
What’s the difference?
Rewards campaigns are good if you’re looking for customers i.e. people to use and buy your service/product and from your customer base. Rewards campaigns also work for raising smaller sums of money. You keep all shares of your business and don’t need a proven financial model to succeed, meaning businesses at any stage can use rewards crowdfunding. You still must bear in mind that the more proven the concept the higher the chance of success will be.
So, all this sounds pretty good so far or does it? If your tech company is a service company, it is hard to rewards crowdfund. Why is it hard? Well what reward will you give away? If your app will only cost 99p, no one will pledge £25 to your campaign and if you’re a B2B company, how will you get the average Joe to back you?
To get around this, you need some creative thinking! What could you give away to your target audience, that aligns with your service or brand? What businesses could you approach to partner with?
An example of this is SafetyNet Technologies. They raised £50k for sustainable fishing technology. The founder came up with the technology whilst studying at the University of Glasgow and then spent the next five years developing the product and testing it.
Most of the general public wouldn’t want their own light device that attracts/repels certain types of fish. But what they might like, is a £25 voucher to a restaurant that only serves sustainably caught fish, or a piece of limited edition art work of fish or the ocean. SafetyNet Technologies partnered with Wahaca and an artist to give away these rewards.
Equity Crowd Funding
An alternative to rewards funding is equity crowdfunding. There is no need to give away a reward with equity funding. Instead you give away shares in your business. Most campaigns are designed to raise over £100k, some even raise over £1million but, be warned… this is an all-or-nothing method. So, you either get your target or you go home with nothing. With equity campaigns, you’re looking for investors not customers, so your financial model needs to show strong growth projections. For that reason, it is best for those who have already tested their projects in the market. Also, being SEIS or EIS registered enhances your attractiveness (to potential investors).
An example of an equity campaign is Craved. Yes, it’s food/drink related but it is a middle man online store and membership site. Craved can’t give away rewards as it doesn’t own the products it sells. However, It is worth understanding the Craved story. Its financials were too ambitious and they had to lower their valuation. In 2016 Craved had an earlier successful round of equity crowdfunding which was relatively easy. However, now due to saturation, it was much harder for them to raise the funds. Investors trust financials as much as the personal stories and marketing, so unlike rewards campaigns there can be no errors or exaggerations!
Good Story and Good Marketing = a successful crowdfund outcome
Whatever type of crowdfunding you choose the strategy to success is the same. You need a story, good marketing and of course a crowd to reach out too. You also must remember you are probably one of ten, maybe twenty campaigns backers/investors are looking at throwing money to, so how can you stand out?
If you have any questions about whether you can crowdfund or how to make a successful campaign, Crowdfund 360 is a platform independent crowdfunding consultancy with an 80% success rate. It offers free 20 minute 1:1 to Company Connecting members.
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"Can my tech company raise money via crowdfunding?" First published on Company Connecting July 2018