Is there an optimum time to crowdfund a business? It’s the most commonly asked question from entrepreneurs considering a crowdfunding raise and for good reason, as the time of a crowd round could be the difference between funding success or failure.
With an average of £9.5m being invested through Crowdcube consistently each month, it’s clear investors’ appetite to back businesses is unwavering and so a successful crowdfunding raise is largely dependent on how investment ready your business is.
Drawing on my experience of going through several funding rounds for Crowdcube and having seen over 300 business raise finance on the platform, there are a number of questions entrepreneurs should ask themselves when considering if the time is right for a crowdfunding raise.
Can I demonstrate enough momentum for the stage of business?
Irrespective of whether you’re a startup seeking seed-stage investment or an established business raising growth capital, investors will want to see that the business has gained some traction with tangible developments such as sales or contract wins.
For example, Pip & Nut, a startup producing a range of nut butters, had made their first sales at a pop-up shop and street market in London when they launched a crowdfunding campaign on Crowdcube. These initial sales, coupled with interest from the likes of Selfridges, was sufficient evidence of traction to inspire investment from the crowd. The business went on to exceed its investment target and, just five months later, Pip & Nut landed on the shelves of Selfridges and is now stocked in over 1,200 stores across the UK.
For more established businesses, investors will want to see how they can execute growth plans and that they have made some steps towards delivering that growth.
Investors will want to see that the business has gained some traction with tangible developments such as sales or contract wins.
One such example is Sugru, the mouldable glue which raised over £3m on Crowdcube in 2015 to fund its global expansion. In addition to having granted patents in Europe and China and pending patents in the USA and India, the company was already operating in 160 countries and had begun building a team in the USA. All these factors help to give potential investors the confidence that there is an established route to market to deliver their expansion plans.
Before seeking investment from the crowd, entrepreneurs will need to ensure they are able to demonstrate enough traction and momentum relative to the business’ stage of growth.
Can you back up your idea?
Businesses will also need to ensure that all the supporting paperwork is in order before launching a crowdfunding campaign. It sounds like an obvious one, but making sure you have all the necessary paperwork ready should be more than just a tick-box exercise. If you’ve got a great idea, you need to be able to sell that idea and your vision for the company’s future to potential investors.
There needs to be an energy behind your raise to ensure you maximise the opportunity, so be tenacious, well-prepared and committed.
You’ll need a compelling pitch that provides a clear overview of the proposition and covers the business' unique selling points, the potential market opportunity, the strategy for growth and, of course, how and when investors could see a return. Even the best idea in the world will need to be underpinned by detailed business plan and robust financial forecasts, especially for startups and early-stage businesses, it may not be the decisive factor in securing investment, but a poor plan could be the reason for not getting it.
Are you ready to make an investment?
Raising finance requires an investment of your time and effort, there needs to be an energy behind your raise to ensure you maximise the opportunity, so be tenacious, well-prepared and committed. If possible, avoid launching a crowdfunding campaign at a time that’s particularly busy for your business, so you can really focus on getting in right.
Crowdfunding not only gives businesses a platform to raise finance from a broad range of investors, it also enables them to engage their existing network and create a direct relationship with a crowd of potential brand advocates. Businesses that are able to invest the time in maximising the opportunities crowdfunding has to offer can reap the benefits of crowdfunding, which go well beyond an injection of funds.
Raising finance from the crowd is now a mainstream source of finance for businesses across the board, from startups right the way through to larger businesses raising Series A funds. Irrespective of your business’ stage, sector or size, it’s likely that at some point in your journey of starting and growing a business there will be a ‘right time’ to crowdfund.