It’s something of a misconception that in order to raise investment on a crowdfunding platform, businesses just apply online and away they go. The reality is that a very low percentage of the businesses that apply online actually make it onto the site.
The majority of the businesses we work with are in fact the result of direct outreach by the business development team. If you look at the structure of our business, you will see that the majority of people are in a commercial or business development role. These people spend most of their time going out and researching great companies that Crowdcube wants to do business with.
Successful business development is of course core to the success of the business and the key to a high performing business development team starts with the hiring process. Knowing the ideal attributes required and then actively going out and hiring against those is critical.
We then arm the team with the tools to unearth companies we want to work with, whether that’s technology to help find businesses at the appropriate part of their life cycle or social selling – understanding the right events and meetups to go to, and the best way to spend their time there.
Like any other business, direct cold outreach is also an important part of our business development strategy. This includes using tools like LinkedIn and Twitter to unearth the right decision makers at companies and getting them to engage with us.
How we look for crowdfunding opportunities
We segment businesses by stage of growth, so we look for businesses at different stages of their development. We don’t just go after seed stage, early or high-growth businesses, but look to attract a mix of all of these in response to investors who are increasingly looking to develop a much broader investment portfolio.
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We also look for connected parties; whether these are companies we already have a connection with via members of the board or companies we have done business with before. If we have done business with a successful entrepreneur, we will look to that person to connect us with their network of contacts. This approach shows the power of referrals and the importance of endorsement within an existing network.
Investors are also crucial for developing new business opportunities. We tap into our 370,000-plus investor community for guidance, looking to them to bring us interesting investment opportunities and also by analysing what has previously been successful on the platform.
Investors speak through their level of activity on the site so, for example, we know that if we were to list an interesting technology business right now, we would have very high investor interest. We have more demand from investors than we can satisfy, especially when it comes to exciting fast growth tech opportunities.
We also recommend talking to other businesses that have crowdfunded to find out how they found the process.
We are also offering investors access to much bigger and later funding rounds, which means they can invest in businesses that are further along in their development cycle and actively looking for crowdfunding to be a part of a bigger funding round, often led by institutional investors, including VCs and banks.
This is attractive to investors who are getting access to an asset class that has previously been closed to them. Until now, they couldn’t hope to invest alongside a firm like Thrive Capital in a £19.5m funding round for Monzo, for example. There is a very different risk profile associated with a company that is further along in its growth cycle, is better capitalised, and has gone through more proof points to get to this stage.
For an entrepreneur co-investment rounds like this are also a great way to reduce the concentration of risk of operating with one institutional investor so, in effect, you get diversification of capital. The business can also go out with a strong message that they have proactively made the decision to allocate a percentage of a funding round to customers as a thank you for being an important part of the company’s growth journey.
Our Funded Club – those who have successfully raised finance on the platform – becomes increasingly important for business development. The more value we can add to a business post-crowdfunding, the more value they are likely to return to their shareholders – ie. Crowdcube investors. It’s also more likely that they will return to the platform as repeat business and we’ve are seeing this more and more with the likes of Sugru, POD Point and Brewdog.
More recently, we have put in place a fast growth partnerships team and part of what they do is to plug in growth service providers – the likes of Amazon Web Services and some of the big accountancy and law firms – to Funded Club alumni to enable them to grow their businesses even faster. The Funded Club is a hugely valuable asset and a highly attractive business community for service providers.
What can you do if you want to crowdfund?
Our advice for businesses that may be looking to crowdfunding to raise funds is to take that first step and speak to the experts. Crowdfunding sites invariably understand the growth pains that a company goes through when starting up.
A word of caution - around 90% of companies that seek investment do not make it onto the platform. The due diligence process is rigorous and rigorous for a reason, so we advise submitting a detailed business plan, financial forecasts for the next three years and an engaging and informative video.
No company is too small to apply – we often support seed-stage businesses, pre-revenue. There are no hard and fast rules about stage of growth, and it should not be a barrier to a crowdfunding round. It usually comes down to the experience and execution ability of the team. We also know that investors like early-stage businesses, as it means they are getting into the investment process early.
Any business looking to crowdfunding to raise money should do so having done their own due diligence. Look past the hype, research the market and reference independent third-party data on the performance, success and scalability of a platform before deciding on who to work with.
We also recommend talking to other businesses that have crowdfunded to find out how they found the process, what worked, what didn’t and what they would do differently next time round.
Crowdfunding can be daunting and a worrying time, but ultimately it should be an enjoyable experience.