28th February 2022
Our equity raising process is different from raising debt, which works automatically, and aims to prepare you for the more involved fundraising process of equity crowdfunding. If you’re considering a campaign, then please do get in touch on equity@crowd2fund.com.
1. Initial due diligence review
After engaging Crowd2Fund about your wish to raise equity finance, we conduct some initial due diligence on your business which involves background checks, basic financial analysis, identification, security checks and we also provide initial advice on your forthcoming investment round. If we don’t think it’s feasible, we will tell you right away and potentially advise on alternative sources of capital which may be more suitable for your business.
If it’s a project that’s right for our platform, then we will send an engagement letter and proposal detailing the financials and our recommended approach to the campaign. We also submit a document request, and then your documentation is uploaded onto the dedicated due diligence secure drive. This initial due diligence will also require evidence of your SEIS or EIS pre-approval which is a critical factor to drive investment from private investors via Crowd2Fund.
2. Developing your investor pitch deck
Clients will be required to provide a pitch deck detailing the plan for the expansion of the business. We will provide feedback on the pitch deck and advise on a structure for the deck which is expected from investors.
The pitch deck should be around 10 to 15 slides long and paint a clear picture of your business plan and growth strategy. The pitch deck is a critical piece of marketing material that should be clearly written and well designed for external circulation. We’ll also provide you with examples of good pitch decks which have gained traction from investors successfully.
3. Valuation, exit and investor return
You should have a well-defined valuation methodology and this should also be validated by an external accountant and legal team. There should be a clear definition of how you value the business, there are various well-known methods to valuing businesses.
You could consider a valuation based on profit, revenue, or competitor valuations and comparable industry exits. What's important is the defined methodology and reasonable justification. It's accepted that providing accurate valuations is challenging but it's key to ensure its attractive for investors and it also may not be necessary to push for a very high valuation but keep it reasonable and justifiable for investors.
You should clearly demonstrate that as the business grows the valuation will increase and what your exit strategy is to ensure investors achieve a good return should be described within your pitch deck or campaign page.
4. Pre-commitment from your investors
When the due diligence, pitch deck and valuation are complete the next step is to start communicating with your friends, family, investor networks, and customers. Some businesses choose to run a pre-investment campaign to drive initial tentative investment amounts and curate a list of target high net worth investors.
You should aim to secure pre-commitment from investors much higher than your target amount. Every campaign is different, but you should aim for 3-5 times your target from initial pledges because not all these pre-commitments will not convert and the amounts will vary when the commitment is made during the campaign.
5. Your customers and rewards
As part of the pre-commitments, you should also communicate your forthcoming investment round with your customers, as this is a good source of potential investors. You can incentivise your customers by offering your products as an additional incentive for investors. This could be a tangible reward or a potential discount for investing an agreed amount.
You can also drive customer loyalty by bringing them into your business and allowing them to own part of it. Like building a network of brand ambassadors who can champion your business over the longer term.
6. Your investment campaign page
At this stage of the campaign the Crowd2Fund creative and marketing team will be building your campaign page. It's important to include video content and ensure that high-quality imagery is also provided to showcase your business. Investors will be able to make an investment directly via the campaign page after the campaign opens for investment. The content of the page will be clearly written and your investor rewards and valuation will be shown on the page.
Before the campaign page goes live it will be accessible via a private URL. Pre- commitment of 10% to 30% must be pledged by your top pre-commitment investors. When these initial pledges are made the campaign page will be put public on the Crowd2Fund website. Depending on the amount you're raising the campaign will generally be public for 30 to 90 days.
7. Investor engagement
During the campaign, you will be required to continually engage with investors. You need to be emailing and making phone calls to your curated list of investors.
Crowd2Fund will also provide details of investors who contact us and engage with the campaign for you to contact and reach out to. Generally, all investors will expect a meeting with you to discuss the pitch deck and business plan. They are investing in the founders of the business as much as the business itself. This is a collaborative approach of engaging your networks and the Crowd2Fund investors, of whom there are around 15k of them. Depending on your investment offer will determine the amount the platform investors bring rather than mobilising your network of investors.
It’s important to understand the role of Crowd2Fund the scope of every investment campaign is not just to introduce you to investors but to help leverage your existing network in a compliant and secure way.
8. Achieving your campaign target
During the campaign, there will be varying amounts of investment but it's critical to continue to work on the campaign and drive the investment.
Crowd2Fund will support with facilitating the transactions into your account via the campaign page. As the target is reached you will continue to build momentum around the campaign. Normally there is a lot of activity towards the tail end of the campaign after you've achieved 75% of the funding target.
Sometimes campaigns also over fund which is good to drive engagement from investors and further investment activity.
9. Legal and drawdown
When we've achieved the target amount, we will look to finalise the legal agreements. Normally Crowd2Fund advises on a nominee structure but we're flexible enough to allow you to define the specific detailed legal terms and manage these directly with investors.
All legal documents need to be fully signed, all additional security and AML checks should be completed by investors and the funds will be sent directly to your bank account after 6% fees have been subtracted from the total amount raised.
10. Investor communications
Looking after your investors on an ongoing basis is important to ensure they are on board for the long-term journey that it will be until you achieve the sale of your business. Much of this can also be facilitated via the Crowd2Fund platform and messaging system.
Investors should be sent regular updates and provided with details of future rounds to ensure they don't get diluted in the long run.
We hope this guide provides useful insight into running a Crowd2Fund equity campaign. If you are looking to raise between £150k to £500k EIS or SEIS qualifying equity, then please do get in touch on equity@crowd2fund.com.
Thanks,
The Crowd2Fund Team
