Are you looking to raise capital? Like any startup, to scale your operations and become the unicorn that you could be, you will need growth capital. While SMEs do have a few options to decide between in terms of raising capital, there’s one that’s becoming increasingly popular in the Australian startup community — equity crowdfunding (ECF).
What is equity crowdfunding? Unlike rewards or donations-based crowdfunding, an equity crowdfunding raise invites the crowd to become shareholders in your business. Following the massive trend of the US and UK, in just three years the Australian ECF market has continued to grow on a year-to-year basis, having raised a total of $128,454,206 over 176 raises.
ECF is a unique method of raising capital as it is available to anybody and everybody, democratising investing and supporting startups. Equity crowdfunding enables you to take investment from sophisticated and high net worth investors, as well as the everyday ‘man on the street’… Everyone is part of the crowd.
As you may know, private companies can only have 50 non-employee shareholders, with equity crowdfunding any investor that becomes a shareholder in your company is exempt from this 50-shareholder rule. Instead of attempting to appeal to venture capitals and angel investors, you can now target like-minded individuals who relate to the purpose and initiatives of your business. For this reason, there are many direct and indirect benefits of participating in an ECF campaign.
While you’re raising the capital you need to grow, you’re simultaneously building brand awareness, welcoming onboard brand ambassadors, executing a customer acquisition strategy and reducing customer acquisition costs, as well as gaining a better understanding of your business’ unique selling point and opportunity. The unmatchable benefits of this capital raising method is why many Australian businesses are opting to use equity crowdfunding.
Equity crowdfunding is effective and puts power back in the hands of the general community. However, although equity crowdfunding is a viable alternative to venture capitals and angel investors, to achieve a successful campaign you must plan and strategise your execution.
To assist you in preparing for a raise, we’ve put together a comprehensive checklist that demonstrates the initiatives you will need to complete to maximise your chances of blowing the raise through the roof.
Complete and decide on a shareholder agreement, share split and constitution.
Before your raise — and when your raise is live — be incredibly active on social media. Every eye that sees your business name or learns about your campaign is a potential investor!
Complete data-driven market analysis so you have the information you need to impress investors and sell your business.
Investors will want to know the plans for the business. Make sure you:
Gaining momentum is the key to a successful campaign:
Most ECF information is public, so be sure to leverage this! Check out what initiatives and tactics other ECF campaigns in your industry have executed.
Although the above checklist may seem daunting, all good things take time and effort. As any personal trainer will say — consistency is key.
If you follow this checklist, you will give yourself every chance of completing a successful raise and support your company with the capital it needs to grow!
Tim is the managing director and co-founder of OnMarket, where he works closely with all different types of companies looking to raise capital.
