Friday, 31 October 2014

What is crowd funding?

At the beginning of this year I raised £30,000 investment for MyCarGossip via the crowd-funding website Seedrs. 

When I first decided to do crowd-funding, I was constantly asked, what is crowd-funding? To be honest, at the time I didn't fully understand the concept, I sort of learnt as I was going along how it worked and what you needed to do to make it a success.

The dictionary definition of crowd-funding is "The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet."

Seedrs Crowd-funding

I got in contact with Seedrs to see if they would accept my business on their platform, I had to answer many different questions for the application which created a mini business plan for the website. After that I had to create a short video to introduce myself and the business.

We also had to put down the current valuation of the company, we looked at a few other campaigns and saw that all the companies who were raising around £30,000 had a valuation of £400,000. So we put down our valuation as £400,000 post money.

The first thing that I learnt very early on is that you need to get your friends and family to start the crowd funding, the saying goes "If your friends and family won't invest in you, why would anyone else?"

So at the start of the campaign my dad and I got in contact with as many people as possible that we knew to see if they would put any money into my campaign. With the Seedrs crowd-funding, you could put in as little as £10 to become an investor in MyCarGossip.

How much to raise?

We decided to raise £30,000 because with Seedrs if you don't raise all the money, you don't get any of it. Since it was the first time I had tried to raise investment for MyCarGossip we thought we would start off by raising a small amount so that I could hire a sales person and have money to spend on marketing. We also wanted to show that we could have a crowd of people backing the idea.

It proved very difficult at the beginning because you need to be able to show constant momentum so that Seedrs' own investors get involved.

During the process I did quite a lot of research into crowd funding to learn how to do it successfully, I even learnt that there were a few tricks there were being used. For instance- you could find one investor who is going to put in a large amount of money but get them to invest that amount in stages. So they could invest a third of the amount at the beginning and when you have a dip in momentum you could ask them to put in the second and third amounts towards the end of the round by topping up so there is a significant increase towards the end of the campaign.

It also helps if you have an offline investor who is interested in your business who will put their money into your campaign. I noticed a few campaigns that were raising £100,000 but had one investor who put in £50,000 so they already had half their money. Having half the money obviously encourages other investors to get on board as they can see that someone else is already involved.

Offline events

A great thing about Seedrs was that they hosted an offline event for some of the campaigns and invited me along to pitch and meet with some of the investors who could be interested in investing. I went along and gave my 60 second elevator pitch and then stood at a stand and spoke to potential investors. I was also invited along to another event where I could stand at the Seedrs stand with Seedrs as an example campaign. Both these events were very useful.

The team at Seedrs were very involved in my campaign and I could really tell that they wanted me to successfully raise the money and they put in a lot of effort to teach us about crowd-funding so that I could raise the investment.

It took around 2 months to complete the crowd-funding, we ended up going into over funding and raised £30,830 for 7.69% equity. The equity was automatically calculated through the Seedrs platform.

Crowd-funding was a really interesting experience but it involved a lot of time and hard work!

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