Earlier this year UK equity crowdfunding pioneer Crowdcube proudly announced that JustPark, a company pitching for investment through its platform, had raised a record breaking £3.7m. It was one the many success stories that have helped place crowdfunding squarely on the collective radar screen of startups and early stage companies. In deal terms, crowdfunding in Britain was worth about £84m in 2014 with further growth to the tune of 40% expected in the current year, according to UK innovation agency NESTA. Meanwhile across the rest of Europe the market is worth around £82m.
Inevitably we tend to hear most about the success stories – the companies that achieve or exceed their funding targets in a matter of days or weeks - but not every hopeful business gets what it requires from the crowd. As with rewards based crowdfunding, there are campaigns that begin with high expactations and confident pitches and then falter in the face of investor indifference. And to be frank, investors have a lot to choose from in terms of both the growing numbers of companies pitching for funds and the available platforms. It's not surprising that some businesses fall by the wayside.
So how does a business maximize its chances of success?
Well Nordic crowdfunding platform FundedbyMe has been doing some research on that topic and as it turns out “crowd” investors aren't that different from the angel and VC counterparts in the way they assess the prospects and viability of potential “opportunities.”
It's In The Numbers
FundedbyMe carried out an analysis of the various factors that influenced crowd investor decision making and their impact on the outcome of campaigns. Not surprisingly perhaps, potential backers looked closely at the figures presented by hopeful companies.
For instance, companies that provided robust market statistics were 30% more likely to achieve a successful outcome that those who didn't. Similarly, those who provided reliable financial forecasts boosted their chances of success by 37%.
Arguably these are factors that any young business seeking investment should be aware of. A pre-revenue business won't be in a position to impress potential investors with its trading record, but what it certainly can do is demonstrate that the founders have researched and fully understand the market. Equally, realistic forecasts underpin the credibility of the management team.
Background Matters
According the report, investors also look closely at backgrounds. If a member of the team has worked in management or consultancy the chances of achieving investment rise by 26%. Evidence of business education is also helpful.
This may be evidence that crowd investors are becoming more professional. Certainly angels and VCs are famously people focused and many will tell you that a great management team trumps a great idea. It seems that crowd investors – who these days may well include angels and VCs among their number – are applying some of the same criteria. Certainly if you're building a team, it would probably wise to get at least one person with a business track record on board.
Keeping it Social
Investors seems to like businesses that take social media seriously. Indeed, those who place a link to Facebook or Linkedin on their crowdfunding platform pitch increase their chances of success by 30%. Having lots of likes is also a plus point. This arguably means that companies in search of finance need demonstrate an ability to exploit social media to the fullest possible extent, not only as a means to attract potential investors to campaigns but also to build the kind of wider 'fan' base that could provide a platform for sales and marketing.
The crowdfunding market is changing. Professional and institutional investors are using some of the major platforms to add to their own portfolios and their presence is adding to the funding available. The appetites of investors are changing too. It's not possible for just about every type of B2B and B2C business to raise money, if the pitch is compelling.
But it's a competitive marketplace and to succeed, pitching companies must not only have a viable product and business plan (not to mention a good promotional video) but also good market data, robust forecasts and possibly also a commercial track record, if they are to maximise their chances of success. It's a bit like pitching to an angel or VC really.
