Equity crowdfunding is fast becoming a popular alternative to more traditional forms of funding. Businesses run an online campaign to raise capital by reaching out to their crowd — friends, family, customers and other networks — and a wide investor audience.
Each campaign has a minimum target to raise. If the business reaches its target, they keep the money and the people who pledged become shareholders in the business. If they don’t, the money gets returned to the pledgers.
“Crowdfunding makes funding democratic,” says Brianne West, CEO of Ethique, a Christchurch-based company that manufactures and sells ethical beauty bars.
West had been in business for two years before she decided to run an equity crowdfunding campaign to take Ethique to the next level. The Ethique team hit their campaign target of $200,000 in just 10 days.
But crowdfunding isn’t for everyone. Businesses that already have followers and an interesting brand, product or service are more primed for success. Your business plans and financial records should also be in tiptop shape.
“Crowdfunding works well for people who are really close to their customers and their crowd,” says Anna Guenther, founder of PledgeMe, a New Zealand crowdfunding platform. “It works best if you’re not in the pre-product, pre-revenue phase,” she says.
“It’s not the size of your customer base that matters. It’s about how much your customers care about you.”
This certainly was the case for Brianne West.
“We had an incredible amount of loyalty from our customers already,” West says. This gave her a solid base to promote her campaign to.
West’s advice to others is to consider their brand — and to have a genuine purpose and story that resonates with people.
“People have got to have an emotional bond with your product.”
Crowdfunding also takes a decent amount of preparation to get up and running and for ongoing promotion.
PledgeMe requires businesses to go through six weeks of training before they can run an equity campaign. The course covers important topics on how to get documentation together, create a communications plan and design a successful pitch. It costs $1,500, but eligible businesses can apply for a Capability voucher to cover up to half of the fees.
New Zealand has several equity crowdfunding platforms for businesses and entrepreneurs to choose from.
“Knowing which one to choose will depend on how you want to raise money,” says Guenther.
PledgeMe focuses on helping entrepreneurs and businesses tap into their own networks for support.
Other online capital-raising platforms, like Snowball Effect and Equitise, are more geared towards exposing businesses to a more extensive investor audience.
To get an idea of which platform might suit you best, check out campaigns that have run on the different crowdfunding and online capital-raising platforms.