While it seems as though some investors have learned to embrace crowdfunding, it seems others have developed reservations when it comes to using the funding method. On Wednesday, equity crowdfunding platform Seedrs revealed 10 particular reasons why investors don’t give funds to certain campaigns.
“There are an immeasurable number of reasons why equity crowdfunding campaigns may not hit their funding target. Here at Seedrs we see a plethora of budding entrepreneurs submit campaigns with the aim of raising funds for their businesses, in many cases, their first or second round of financing.
“However, not all campaigns are successful. Having an all or nothing rule for campaigns means that if businesses don’t reach their funding target within the sixty day deadline they don’t receive any of the money. This can be hard for entrepreneurs to deal with and for many comes as a bit of a surprise.
“Having seen this a number of times, I thought that I would share some insights and tips base on my experience here at Seedrs on how to avoid this happening. It certainly isn’t an extensive list, but they are reasons that repeat themselves and are common to many campaigns that don’t succeed.”
Check out the reasons below.
- They don’t understand: “Investors want to invest in businesses and ideas that they understand. This is the only way they can rationally decide whether they believe the investment has the potential of making a return. The power of Seedrs is that it puts your campaign in front of a huge amount of people that are interested in investing. These investors come from all backgrounds, from lawyers to teachers and engineers. If the idea itself takes aPhd and a 100-page pitch deck to understand, most of these investors will be left uninterested. We find the businesses that work best are those that solve a problem which is common to many people with a solution that is understandable. We’re not saying only simple businesses fund, but rather, more complex businesses who are successful are able to clearly define the problem that they are solving, and how their organisation enables people to do that.”
- They don’t see your vision: “Even if the idea isn’t particularly complicated, investors may not be able to see the vision that you have for the business. This can be a particular issue for very early stage businesses that don’t have a number of case studies as evidence to validate the business model. This is where the video and the campaign text become so important. You need to explain to potential investors what your vision is, and persuade them that you and your team are the ones who can achieve it.”
- The valuation is too high: “Valuation is notoriously difficult to get right, but it is a crucial variable in any investment decision. The principle aim of investing is to make a return, so investors will look for deals that are priced in such a way that, if all goes to plan, they will make a sufficient return for the risk that they undertook. One of the most common mistakes an entrepreneur makes is calculating how much money they need to raise and then, completely separately, thinking about how much equity of their company they would be comfortable selling, without thinking about the valuation that this places on the company. Instead, the entrepreneur needs to think like an investor, and place a value on their company based on what they believe it is worth today. Investors on Seedrs are sophisticated and see a good deal from a bad one. You really need to aim to be seen as a good one.”
- The video doesn’t tell a good story: “For me, the video is one of the most important parts of the campaign. After the summary text, it is what I will look at to find out more about the company and whether I want to read the rest of the campaign. It needs to grab the viewer’s attention right from the start and quickly and clearly set out what the company does before going into more detail. In an online environment like Seedrs, it is also the best way to bridge the cap between actually meeting the entrepreneur face to face. It is therefore imperative that you use it to your advantage in order to build confidence and rapport with anyone interested.”
- The campaign is badly written: “We review and perform extensive due diligence on all campaigns on Seedrs and we will often offer advise on re-writing or editing sections. However we don’t know your business inside and out like you do, and ultimately it needs to be you who takes responsibility for showcasing your business in the best way possible. We don’t know the culture you have nor your story, so it’s difficult for us to help add these small pieces in for you. Investors will want to see a well-written campaign that tells the story and the ambitions of the business so that they can quickly make a judgment and know whether they’re interested. A person’s attention span online is incredibly short, so your campaign has to tell a good story quickly so that an investor will be motivated to dig a bit deeper and learn more about the opportunity.”
- You aren’t answering questions: “Asking a question via theSeedrs portal is likely the easiest way for an investor to get in touch with the entrepreneur. It’s a great way for the investor to get the extra information they need which is important to them and it allows them to build an initial rapport with the team. In addition, just as in school, it’s likely that many other people will have had that question but hadn’t asked. Although many investors will be asking questions, many, many more will be reading the answers. As a result, answering questions in a timely, polite and detailed manner is really important to gain the trust of a potential investor and reduce the information asymmetry that exists. If they see that you aren’t answering questions in a timely manner, then they may not trust you with their money.”
- No-one else is getting involved: “There’s a very human phenomenon that comes out in crowdfunding – investors like to follow other investors. Just like when you walk past 3 empty restaurants in order to queue for the busy one, investors like to get involved in campaigns that other people are already invested in. This does not mean that the crowd are sheep, blindly following each other, but if you aren’t getting any traction then people are unlikely to bother taking a closer look. The easiest way to get this early traction is from your own network; your friends, family, customers and anyone you can reach out to on your own. It is therefore essential that you build a strategy in advance on how best to reach them.”
- Lack of clear exit strategy: “An investor will want to see a realistic way for them to realise the returns from their investment. A stake in a start-up company will likely be one of the most illiquid assets an investor can have, but they will still expect liquidity events to be possible, albeit very uncertain. An early stage business has enough trouble in succeeding, but if it does succeed, an investor needs to understand how they might realise a return.”
- No evidence of bootstrapping: “Before investing in a business, many investors will want to see that you have done as much as possible with the money that you already have. They want to see that you can hustle and get results with minimum resources and that you will use the money they give you effectively and efficiently. Make sure you show the grit and determination that you have to make the business succeed within the campaign page. Good hustle is one of the best indicators of both a good entrepreneur and a successful crowdfunding campaign.”
- Lack of full team: “For many investors, the team is often more important than the actual idea. Even a mediocre idea can become great with an amazing team, but in contrast the best idea will likely fail with a terrible team. You therefore need to show that you know this and have created a team that makes you amazing. In addition, it’s impossible for one person to have all of the skills necessary to run a successful business. Investors will look for you to have a team with complementary abilities, that hits all of the bases (finance, marketing, tech) and gives you a concrete base on which to grow the business.”