Synopsis: Equity crowdfunding is a great way for startups to raise money AND gain marketing exposure at the same time. But before you get the chance, you need to submit your crowdfunding pitch for approval to the crowdfunding platform. This article will massively increase your chances of getting the all-important “YES”!
What Is A Crowdfunding Pitch?
“Pitching” is standard terminology in the world of finance; it means delivering your investment story. The word comes from baseball, where one player (known as the “pitcher”) delivers the ball towards the batter by throwing it.
Baseball aficionados know that having a strong pitcher on your team goes a heck of a long way towards winning the ball game. A fantastic crowdfunding pitch is just as important to your chances of a successful fundraising.
A pitch doesn’t always start with filling in an online application form, as Charlie Thuillier, Founder of Oppo Ice Cream discovered: “I was in the café underneath my flat, walking around their customers with samples of my ice cream, looking for customer feedback. One lady tasted the ice cream, loved it, and asked me if she could take some tubs home. I was just thrilled that she liked it, so of course I gave her more. The same day, I received a call from Jeff Lynn, the Co-Founder of Seedrs, who said, ‘We need to talk.’ Turns out I’d been speaking with Jeff’s wife. We ended up raising on Seedrs shortly after and became the world’s fastest food/drink company to reach target on equity crowdfunding. We have since run another campaign in February 2016 and now have over 600 investors.”
The lesson is, if serendipity strikes, be ready to take advantage of it.
The best way to come across as an amazing company in a crowdfunding pitch is, rather obviously, to be an amazing company – one which has both the big idea and has already made significant progress towards turning it into a reality. Equity crowdfunding is for companies who already have traction – it is very, very difficult if all you have is an idea, simply because investors have virtually zero appetite for funding ideas.
“The idea is such a small part of investing – the professionals want to see what you have done, not so much what you are going to do,” – Peter Moore of Invesdor.
Before You Get Your Shot, You Have To Pitch The Platform
Anyone can list a project on Kickstarter and try their luck, but equity crowdfunding is different.
Before an equity crowdfunding offer can go live, the founders will need to convince the platform that they are worthy, using a crowdfunding pitch. This screening process surprises a lot of startups.
The equity crowdfunding campaigns that are shown to the public are only a small fraction of those that apply. The platforms (at least the good ones) all suffer from the same problem: too many pitches. Bill Morrow of Angels Den has revealed that some days they hear 100 pitches and decide to accept NONE of them. Across the industry, likely under 10% (probably much less) of companies which approach equity crowdfunding platforms will ultimately have their offers go live. The screening process is aggressive, so just to get to the starting line you will need to beat the odds.
The platforms screen out a lot of companies and only list the best ones because they want to gain a reputation for being the platform with the highest-quality deals. If they can gain this pre-eminent reputational position, they will stand a better chance of attracting and retaining a large investor audience and, with that, more high-quality companies will also choose to list on their platform.
With all that said, you should now understand the importance of pitching and be able to see why platforms undertake curation – even if you don’t agree with it. This understanding of what a platform is looking for will help you to hone your crowdfunding pitch.
The rest of this article explains the three key things to do, to maximize your chances of getting to yes!
1. Explain Your Business
“It’s very important that the pitch is good quality. We like to see a well-thought-out business plan right from the start. It needs to be clear. Keep in mind, the people at the platform who you are pitching to have no clue what the business is about at first. It is very important that anybody, even someone who has never heard anything about the company, can quickly understand it, the moment they hear the crowdfunding pitch.” – Jesper Vieveen (Symbid)
The platforms all lament the inability of founders to quickly and simply articulate what their business does and how it works. This, by the way, is a problem with startups and growing companies everywhere.
It is best to explain your business in the very first part of your pitch; otherwise, people’s minds will be too busy searching for context to understand the rest of what you say.
Practice your crowdfunding pitch with friends – ones who know as little as possible about your business. Give your pitch, and then see what questions they ask you. Also, you should ask them questions to test whether they understand what your business does and how it makes money.
If you are invited to pitch in-person, the pitch can be wellcomplemented by bringing along a tangible example of your product, or by giving a live demonstration.
After you have explained who you are and what you do, your pitch should include some standard sections. To help you form your initial pitch, I have created a pitch deck template at citizensoftheworld.io/equity-crowdfunding which you can download for free.
2. Display Your Credibility
Your crowdfunding pitch needs to convince the platform that your company has the potential to do great things.
- How large, and how fast-growing is your market?
- What is unique about your company?
- What product categories do you have?
- Do these product categories match the actual needs of the target market you have identified?
- Who are the competitors?
- Who are the people in your company’s team, and have these people succeeded in this sort of business before?
“At each level of analysis, we consider whether potential investors will see the proposition as an attractive investment opportunity. Is the company’s vision concise and clear? Is it an exciting and innovative business that people will want to invest their hard-earned money in?” – Crowdcube Co-Founder Luke Lang
You also should demonstrate how far along the path to success you have already come. This is where you get to brag, so don’t hold back. Have you already secured large, well-known clients? Put their logos in the pitch. Do you have excellent testimonials from your existing customers? Insert direct quotations from these testimonials. Have you received any prestigious industry awards? Make sure your equity crowdfunding pitch refers to them.
Tying it all together then, explain why your business would make a great investment. Not why it would be great for you. Not why it would be great for the business. Why would it be great for investors?
But what if the very reason you need to raise money is you need to further develop the idea before it is even possible to bring it to market? Well, you will be expected to show *some* progress. The closer you are to customers and revenue, the better. Working prototypes, existing users (even if they are using your product for free), patents, and patent opinions are the kinds of things that can build your credibility.
You should also be clear on why you have decided to raise capital, and why you have settled on equity crowdfunding as the means to achieve that.
3. Show Your Investors
“Besides having a great business plan, it is also very important to show the crowdfunding platform that you will be supported by your own network before the campaign starts,” – Jesper Vieveen of Symbid.
A large crowdfunding platform will be able to provide your offer with some new investors. However, you will only gain the benefit of the platform’s audience if you can generate that initial momentum yourself, with your own investors.
If you expect the platform’s audience to carry you through, you will be disappointed. If you are working with a very strong platform, you might be able to rely on the platform’s audience for around 50% of the money you need, but you will still need to raise at least 50% from your own crowd. If you are working with a smaller platform, you will need to bring even more yourself.
If you are a “local business with a crowd”, this support will mostly come from your customers and personal contacts. If you are a “potential big winner”, this support will most likely come from a lead investor.
You may have been wondering: what is a “lead investor”? A lead investor is a prearranged sophisticated or high net worth investor who contributes a sizeable portion of the raise themselves. This gives an offer momentum and validation to the broader crowd. Having a respected lead investor holding a stake in your company will also help a great deal with their mentorship, contacts, and guidance when raising future rounds of capital.
If you can convince the platform that you have a large, engaged crowd and/or sophisticated investors (ideally both) who are willing to financially back your company, then it makes the platform’s decision to accept you much easier.
So there you have it. You have everything you need to effectively tell the “equity story” of your venture and make your crowdfunding pitch shine – in itself an invaluable skill for company founders to master, whether seeking funding through equity crowdfunding or through other channels. A great crowdfunding pitch can be the difference between getting accepted by the crowdfunding platform, or becoming part of the majority of companies that are screened out.