Darren Mulvihill discusses how crowdfunding has changed and how bigger businesses are getting involved; what are the best ways a business can maximise their success when raising finance; and what directors wishing to raise growth finance in a three to five year view should be doing now
Briefly explain how Crowdcube can help a growing business raise growth finance? How can a Director take their business from small to medium via your platform?
Crowdcube is the world’s first and leading investment platform; we enable everyday investors to invest alongside professionals, VCs and even the UK Government.
Generally there are three types of company that we fund in terms of the size of the raise:
Early Stage Startups often with little or no customers. They’ve built a product that they’ve validated in some way and are looking to raise relatively small amounts of money, often under SEIS (Seed Enterprise Investment Scheme).
The next would be Mid-Tier Companies, those which tend to be more established, have a degree of customers and have developed their customer base sufficiently.
Finally, which is something we have seen increasingly on the platform over the last 18 months, is more Mature Businesses, those with recognisable names and identities in the marketplace. Often going for a growth round specifically for capital expenditure or for a growth strategy that’s going to help them build upon existing growth.
Camden Town Brewery came to Crowdcube within the last year, they’re a well-known brand within London, serve about 150,000 pints per week and have multiple revenue streams.
Camden Town Brewery wanted to raise at least £1 million to build a new brewing plant and were able to do that with hundreds of investors behind them that believed in their brand. They were able to fund relatively quickly by building better exposure in the market place through the PR that came with their campaign.
It showed how our platform can be used to efficiently help companies of that scale raise bigger growth rounds.
Do you have a sense of what’s changed in last 18 months? Why are more established businesses coming onto your platform to raise growth finance?
One of the core reasons you might you want to pick the crowd is if you have regular engagement with many of your customers or users. This then helps consolidate the loyalty of the customer base as you give them the option of investing in the company. Your customers are invested and they become a champion of your brand. They want to see it succeed not just because they love the product but because they’re a shareholder.
“Instead of waking up in the morning knowing you have a couple of large investors you are accountable to, you wake up with hundreds of investors that are champions of the business that believe in what you’re doing.”
In Crowdcube's view, what are the common attributes or approaches of businesses which have tended to be successful in raising growth finance?
There are a number of things to do that are directly related to having a successful crowdfunding campaign:
One of the things great companies do is offer rewards that act as a great incentive which encourages investors to invest certain amounts, at certain time in the campaign.
Companies which have significant engagement and good relations with their customer base will make them aware ahead of time that the company will be raising growth finance via Crowdcube.
“This serves as a great way of warming your community up to the option of investing. This creates not only momentum but great confidence in the business if the stakeholders are investing.”
Directors that wish to raise growth finance in a three to five year view - what should they be doing now?
In terms of growth finance, one of the key questions is “Can the company reasonably assess what growth investors will be looking for at the point when they’re having meetings to raise a growth round?”
Other keys actions include, benchmarking other companies in your sector which have raised finance and understanding the investors’ revenue expectations.
In terms of branding and exposure, understanding what type of audiences you will be expected to have so that you can implement an effective marketing campaign that will allow you get form a solid stage to a larger growth stage.
Other key elements to consider is your corporate governance, such as adequate board.
Who are the advisors helping the business and who are the other previous investors will be questions investors will consider.
If you can build a case as to how you made all these and other preparations, through understanding the ducks that need to be in line, if you can demonstrate this, then usually you’re in a good position in 3-5 years to have productive and positive meetings with growth investors.
Directors of businesses which have a more immediate need (within 1 year) for growth finance; what can they do now to better prepare their business?
In the more immediate term you need to have the fundamentals down in terms of your revenue, brand and your corporate governance, but in terms of the more practical things: you need to make a story and a strategy that’s in line with what’s realistic, one that’s going to make that growth possible.
“What are the resources that you’ve brought together to make the strategy possible and what’s the money going to be used for that’ll propel the business to the next revenue or user base milestone…”
How do Crowdcube protect the interests of the entrepreneur, and what part does Crowdcube play in getting a businesses’ “pitch” right?
One of things we pride ourselves on here at Crowdcube is that we are able to educate the entrepreneur not only on the process of raising funds with us, but what they need to do to be a successfully fundable business.
What do they need to do to create a campaign and an offering that’s fair to the investors but also exciting, true and sellable as an investment proposition?
We work closely with entrepreneurs to help them hone the pitch in a way that the investor will understand. We help entrepreneurs with a sensible valuation of the business, even though ultimately it’s their decision. We help entrepreneurs understand what are the different things that will resonate with our investor base and what won’t.
Over time as we’ve funded more and more businesses, we’ve funded over 290 to date, we have more data on what’s a successful pitch and what isn’t. That’s one of the things we do to help the entrepreneurs and to help protect them.
How do Crowdcube protect the interests of the investor?
Our investor base has grown significantly over the last 12- 18 months, we now have over 200,000 investors so this is very important to us, and we’re regulated by the Financial Conduct Authority (FCA).
We have a constant focus to ensure that the opportunities represented on the platform are fair, clear and not misleading. We do fact checking on the claims that the entrepreneur makes, the company’s history, its legal structure and how that might impact the investment.
We do this with every single company on our platform for 2-3 weeks before they’re made live on the platform, so it’s a big part of the work we do with the entrepreneur.
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