Crowdfunding has become the perfect solution for people who, with a business idea, were struggling with a lack of funding. The ubiquity of the internet, as well as the opportunities it offers in terms of spreading ideas and gathering communities, has completely changed the reality of startups today.
But does this mean that all you need is an idea and the right place to post your ad? Absolutely not! Crowdfunding, and in particular equity crowdfunding, requires decent preparation. And it also requires a lot of hard work during the share issue itself, i.e. a strictly defined period of time when anyone interested can donate funds in exchange for shares in the company. Suffice it to say that, although more campaigns have not been successful, I would particularly attribute the reasons for this to the treatment of equity crowdfunding as the aforementioned announcement post. Leaving questions of fundraising success to fate deliciously seasoned with its own sense of infallibility and crowdfunding fashion. But from the outset ... .
What will you learn from this article?
- What is equity crowdfunding?
- Advantages of equity crowdfunding
- Crowdfunding platforms
- How do you run a share crowdfunding collection?
- Prospects for the equity crowdfunding market
What is equity crowdfunding?
Much about the very concept of equity crowdfunding (crowdfunding) will be explained by the etymology. It is crowd (crowd) and funding (funding). The adjective "equity" clarifies a peculiar agreement between the business owner and the investor, who receives shares in the company, usually shares, in exchange for funds. The raising of funds for a project takes place via online crowdfunding platforms.
A characteristic of investment in equity crowdfunding is the low entry threshold, allowing anyone who believes in the project presented and wants to support the creators to invest. Ultimately, the amount of money needed will therefore be made up of many smaller contributions from investors. They will then become co-owners of the company and enter the shareholding to participate in the development of the business. And in the future, when the company gains value, they can sell the shares or participate in the distribution of profits, through dividends.
Advantages of equity crowdfunding
We divide the benefits of equity crowdfunding into the following categories:
- Financial,
- community,
- image.
Equity crowdfunding is a relatively simple way to raise funds. An alternative to a loan, a strategic investor or an IPO. The costs, unlike a classic share issue with an IPO, are very low. When deciding on equity crowdfunding, you only need to comply with the most common requirement of crowdfunding platforms, i.e. conversion into a public limited company, which involves administrative costs.
Today, through a crowdfunding collection, we are able to raise €1 million, or approximately PLN 4.7 million. This is an unattainable amount for startups in cooperation with a bank and a strategic investor.
Equity crowdfunding is also a great opportunity to build an engaged community of fans interested in developing our project. Every investor we attract will become our real brand ambassadors, who will also care about the success of the brand. On the one hand, they will be our most loyal customers, on the other hand, people who, to the best of their ability and business contacts, will support us in finding partners or distributors.
After all, the sheer popularity that equity crowdfunding is gaining has resulted in real image benefits from participating in the campaign. Journalists, discussion groups, corporate investors, as well as potential customers start to take an interest in the project, which influences the publicity of our idea. It allows the project to be promoted among people interested in innovation and start-up activity. And even if someone would not be interested in participating in the business, they can look forward to a market debut. This time is very good publicity for the brand and the company itself, which will reliably test the market for interest in the service.
Crowdfunding platforms
Fundraising platforms are online services that aim to match a company seeking capital with an investor willing to put up financial support. It is thanks to the platform that potential donors have the opportunity to learn about the idea and make micropayments for support. In Poland, in the context of equity crowdfunding, the most popular are: Beesfund, Crowdconnect.pl, Crowdway. Navigator Crowd, Findfunds and Emiteo have also developed their brand.
When deciding which platform to choose, it is worth considering its experience, possible specialisation in a particular industry and the support offered in promoting the campaign. The cost of cooperation is usually based on a percentage of the amount raised. Whether the payment to the issuer and the platform's profit are worked out depending on whether the full amount is raised or whether a success threshold is reached is an individual issue. In the event of failure, the contributions go back to the investors, the issue fails and the issuer and the platform make no money.
How do you run a share crowdfunding collection?
When thinking about issuing shares through equity crowdfunding, the entrepreneur should already have a set issue objective for which he will raise funds, a fixed amount that will ensure its realisation and the percentage of shares he wants to sell back to investors. Formally, he or she must prepare an Offering Document, on the basis of which investors can get to know the company's activities in a transparent manner and then make an informed decision about the investment. He is then ready to launch the crowdfunding campaign, i.e. to embark on a long, challenging journey, where, as if at the end of a rainbow, he will receive the coveted pot of gold. However, as with any journey, it is necessary to prepare carefully, set a timetable, define a budget, anticipate various scenarios and plan the post-crowdfunding activities.
Contrary to appearances, a crowdfunding collection is not only about 30, 60 or 90 days of issuing shares on a platform. It is also, or even above all, the time needed to build an engaged community around the project. A crowdfunding campaign should therefore last up to six months and consist of three stages: preparation for the launch, the share issue and investor relations after the fundraising is completed. When it comes to an issue as important as the financing of our business project, one should not "go for broke". A crowdfunding collection is hard work. And admittedly, there are collections that have finished in a few hours, but believe it - these are the absolute exceptions, which were also preceded by extensive PR and marketing activities. After all, equity crowdfunding is a community issue, not a stroll for a few, rich investors.
Preparing for an equity crowdfunding issue
We can never be sure whether our idea will meet with the interest of investors. In order to increase the chances of raising funds, we should conscientiously do our homework, i.e. describe the goal of our fundraising, present the company, the project under development and the team of employees. Let's present our vision and the reason why we decided to start the project. Investors in equity crowdfunding need to believe in our idea, which will bring them tangible financial returns in a certain perspective. And, at the same time, they need to feel that behind the project are people with experience and competence who are stepping up to the plate with a viable project to realise.
Maintaining balance is very difficult, so let's take a look at the most important issue variables that need to be refined before launch and included within a clear timeline.
Amount and duration of issue
When knowing how much money our project needs, it is worth considering the psychological aspects of fundraising. Too high an amount may scare off investors. Against this backdrop, small amounts - characteristic of equity crowdfunding - can give the impression of slow progress of the collection and low interest in the issue. In the context of the timing of the fundraising, 90 days may cause investors to defer support in order to gauge interest. The low momentum, especially in the middle stage of the collection, may raise legitimate concerns among investors about the sense of investment. In addition, 90 days is a really long period to be filled with investor communication activities, which also requires the absorption of the creator and financial resources. The optimal issue time is 45-60 days, which we can possibly extend to 90 days if necessary.
Remember that the time that needs to be worked conscientiously is the weeks before the broadcast, the so-called pre-campaign, when we start to inform the world about the project and build a community that will wait for the broadcast to start. Then this 90 days for the preparation stage is the absolute minimum.
Website of the crowdfunding issue
The basis of our preparations is to build a clear and informative issue page on the crowdfunding platform. It will become our business card and a place which, like a lens, will focus the attention of all interested parties. It should present the project in detail, the terms and conditions of the issue and the arguments that will make investors entrust their own finances to us. This is painstaking and time-consuming work requiring many compromises, which we should by no means leave to the last minute. A correctly constructed website should consist of the following sections:
- "Invest" - a section at the very top with information regarding the issue, i.e.: amount, percentage of shares offered, progress of the fundraising, number of current investors and time until the end of the campaign,
- "News" - section not visible at launch, to be supplemented as significant events occur,
- "What sets us apart?" - the differentiators of our company,
- "About us" - Information about the company, product/service description, non-business activities, awards, distinctions,
- "Product/service" - a detailed description of the project, which is a source of revenue for the company,
- "Team" - photographs and short biographies of key staff,
- "Past achievements and plans" - key events in the life of the company, arranged in chronological order, and ambitions for the near future,
- "They support us" - information on cooperation with well-known people, business and sporting figures.
- "Business model" - a scheme to offer its services, expand its distribution network, increase its markets,
- "Market and competition" - a description of the issuer's industry with forecasts,
- "Financial results" - companies reaching for equity crowdfunding are overwhelmingly startups that have not yet generated revenue. However, if our business has been around for several years it is worth presenting financial results with an explanation,
- "Investment objectives" - in a situation where our issue is intended to finance several, minor projects it is worthwhile to list them with a specific amount,
- "Investment packages" - packages of investor gifts offered with shares. The essence of the additional benefits can be found in the paragraph "Investment packages",
- "Media about us" - list of relevant press publications. For details, see the paragraph "Media relations",
- "Exit prospects" - Opportunities for return on investment,
- "FAQS" - a list of the most likely questions and answers that may arise during the broadcast.
The range of messages included on the page will depend on the information available. It is very good practice to enrich the text with coherent graphics, videos and diagrams. The whole should form a harmonious, pleasing whole.
Investment packages in equity crowdfunding
Equity crowdfunding allows additional bonuses depending on the amount of money invested, so-called investment packages, which allow you to receive valuable benefits in addition to a certain number of shares. The most common is a discount or free product, a company gadget, a pre-release voucher, an invitation to attend board meetings. Naturally, the value of the package increases with the amount invested. For investors, in addition to the obvious material benefit, the psychological factor plays an important role. Gifts are received as soon as the issue is completed.
Media relations in equity crowdfunding
A crowdfunding campaign targets the wider community who, for various motivational reasons, may support a project in the early stages of development. The overriding role of the media in the success of a fundraising should therefore not be underestimated. It is mainly from them that our potential investors will learn about the issue, so let us prepare solidly for media contact.
Let's start by identifying the person who is the contact for the media. This is most often the creator of the entire project. Let's prepare his or her biography, print-quality photographs and train with the principles of cooperation with the media. Next, let's create a media base, divided into financial media, trade media, but also local media. While the first two categories seem reasonable to most, as the audience of these media may have a keen interest in the investment, local media is not a very obvious choice. And frankly, it is the local community that knows the entrepreneur and the company that can drive the outcome and the number of investors, a perfect example being The Mazurian Manufaktura SA campaign.
Contact with the media should start a minimum of three months before the launch. This is when we start reaching out to the trade media with arrangements. One month before the launch, we inform the media about the planned issue. In this way, the issue topic slowly starts to reach investors. On the other hand, we collect valuable publications, which we then report on the issue page. This adds much-needed prestige to the company and the project.
It is also worth thinking at this point about press topics for the media for the time of the broadcast, such as planned cooperation agreements, financial results. 60 days is quite a long time, and information about the launch and the imminent end of the broadcast is definitely not enough to keep the company interested in the media.
Not sure what topics are of interest to the media and how to maintain interest in your company? Make an appointment for a free consultation.
Equity crowdfunding benefits from social media
There is no effective promotional campaign today without the involvement of social media. The popularity of Facebook, Instagram, LinkedIn and the ability to profile the message and audience has made it an essential marketing tool today. This is no different in a promotional campaign for a crowdfunding issue. The company's social media profile becomes the second place, after the website, for reliable information about the company, the project and the issue.
We also start activities on the social media account well before the broadcast starts. We keep them informed about the planned broadcast, major events and media articles. When preparing an advertising campaign, we create creations that we target to the audience interested in investing and crowdfunding.
Facebook groups are also an excellent place to promote yourself, as they have a greater reach than pages thanks to the algorithm. Therefore, let's join groups, be active and lead discussions in order to have a valuable partner status at launch.
Social media also means contact with influencerswho, as part of their collaboration, will contribute to spreading our project to their own followers.
Q&A document
PR activities in traditional and social media will sometimes result in us facing difficult questions from journalists and investors. It is worth preparing a Q&A document for this moment, where we include the most common and problematic questions with answers. These should be unquestionably learnt so as not to give the impression of wrenching and evasive answers at the point of rehearsal. Investors will quickly pick up when you give a different answer depending on the venue, be it a Facebook forum or a webinar. And believe it or not, the company will certainly hear: "Why is the company's capitalisation so large?" and "How will meeting the issue targets result in a profit for the company?".
Brand ambassador
A brand ambassador will add credibility to our project. The benefits of collaboration are indeed many, and among the most important are the promotion of our issue in non-investment media and social media reach. Equity crowdfunding, as I have already mentioned, is about building a community, so any form of promotion of our issue is at a premium. You can read more extensively about the possibilities of working with an ambassador, the process of acquiring a known creator and the benefits in the article "Brand ambassador".
Promotional video
I recommend preparing a short video of no more than 5 minutes introducing the company, the project and the development prospects. In it, outline the objectives of the issue, the amount of money needed and a concrete explanation of how meeting the objectives will increase the value of the company, which will bring a tangible benefit to investors. For investors, this is a sign that the issuer has really taken the issue seriously.
The video can be published on an issue page and shared on social media. It is very often the object of shares and likes, as it replaces the need to read a longer text.
Video, cut into shorter pieces, is also excellent material for advertising campaigns.
Equity crowdfunding exit
For a potential investor, equity crowdfunding is a form of investment that, in the long term, is expected to generate concrete financial returns. Therefore, the possibilities of monetising the invested funds should be precisely specified. Neglecting this element may undermine all the effort put into preparing the campaign, as no one will be interested in freezing capital for several years.
The most popular return model is a debut on the NewConnect. Then the shares will go public and anyone can buy and sell them at the market price. The second option is for a strategic investor to step in and buy shares from smaller investors. A prospect that is also interesting, but with the risk of a lengthy search for an investor, as well as a sale agreement that ignores the interests of small shareholders. Further options are a declared share repurchase at a higher than issue price and an annual dividend payment.
Equity crowdfunding share issue
The launch of the issue is the moment to put the preparations made so far into practice and to maximise activities in traditional and social media. We are also introducing elements of direct contact with investors - the investor relations. The overriding aim is to promote our issue as much as possible.
Firstly, the broadcast page starts, along with a progress bar and a countdown to the end of the campaign. It is important to show interest in the campaign at this point, so let's take care of the first contributions. Through the page, the contact form or email starts to work, so without undue delay, let's answer any questions or ambiguities.
We are intensifying our contact with the media. We inform journalists about the start of the broadcast, previously planned topics and, finally, the upcoming broadcast finale. We offer texts on topics around the industry and establish cooperation with local media to introduce the creator.
An advertising campaign is taking off in social media and we are keeping you up to date with important developments in the life of the company, collaborations and key publications. We are intensifying activity in groups and forums.
Investor relations in equity crowdfunding
During the issue, we are launching a number of initiatives aimed directly at investors. Highlights include chat, webinar and mailings.
We organise the webinar and mailing in conjunction with the crowdfunding platform that is carrying out our share issue. The largest platforms have their own investor bases, which should be informed about our project in the first place. We organise the webinar 2-3 times during the issue. It consists of a presentation part and a session of questions asked live by the participants of the event.
We can also organise the webinar ourselves by creating a Facebook event with promotion in the crowdfunding investor group. A joint live webinar with an issue ambassador, also aimed at his or her fans, is also an idea worth considering. A recording of the webinar can be sent to your own group of subscribers not present at the meeting.
We will conduct the chat, both in written and video form, in cooperation with a retail investor organisation and investor media with a broad base of unique users. The principle of conducting a chat is identical to that of a webinar.
The timing of the issue and the first contributions build a group of investors. It is worthwhile from the first moments to take care of the people who have already trusted us. To this end, let's set up a closed group on Facebook, where we will be in constant contact. A phone call offering to send additional information is also welcome.
End of equity crowdfunding issue
If the issue is unsuccessful, we can extend the campaign period to a maximum of 90 days. However, if we deem this step unnecessary then, depending on the agreement with the crowdfunding platform, the funds will be transferred to the company or returned to the investors.
When an issue results in a new group of investors joining the shareholding, we should immediately follow up with investment packages. We also remain active on the closed Facebook group. It is also a good idea to hold a meeting with key shareholders once every six months. This really builds relationships and trust. And in the event of setbacks, which can happen to anyone, it offsets the risks crisis situations.
It is worth considering at this point to introduce investor relations principles typical of a listed company. After all, investors trust us and, thanks to them, we can realise our dream of having our own brand. It is really not a big deal if we organise an investor relations page, commit to publishing our financial results or actively use investor contact tools.
If the collection is a complete success, we inform the media about the fact and, importantly, we absolutely do not end the media relations activities. There is nothing worse for a company's image than a gap in media publications. Especially if we were to launch another crowdfunding issue or an IPO campaign in two years' time.
Prospects for the equity crowdfunding market
The equity crowdfunding market in Poland is growing at an incredible rate. In 2015, issuers raised just over PLN 300,000 in capital. In 2021, the total was already almost PLN 124 million. Comparing 2021 to 2019, the growth rate was 140%.
There are many indications that the future will be very kind to equity crowdfunding. The practical absence of barriers to entry, the low cost, as well as the planned increase in the fundraising quota limit and the formalisation of the process, could result in a real alternative to the stock market floor. In line with the EU Parliament and Council regulation of 7 October 2020, rules have been set out to comprehensively regulate the activities of crowdfunding platforms. The issuance limit has been raised to €5 million, although the threshold will still be €2.5 million until 9 November 2023, on a transitional basis. On the other hand, also more expensive loans may turn the gaze of startups towards this side of financing. The more unconventional the project, the more difficult it is to raise funds from the bank and the easier it is to get the investment community interested in it.
