28/10/2019 - 10:59

The ins and outs of equity crowdfunding: Insights from our raise.

28/10/2019 - 10:59

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Equity crowdfunding in Australia is becoming an increasingly popular and effective way to raise investment for a small business - especially for an early stage businesses. This is mainly due to recent changes to the Corporations Act that allow Pty Ltd companies (which many SMEs are) to raise money with what is termed Crowd Sourced Funding (CSF) and commonly referred to as equity crowdfunding. 

As equity crowdfunding is a relatively new way of raising funds, there isn’t a lot of information on why you would use it and what’s involved. This made it difficult for us to decide if it was the right thing for Tiller Rides to do for the current raise. Now that we are in the final week of our equity crowdfunding raise, I thought I’d share my top 9 insights here for all to read. 

Make sure equity crowdfunding suits your business

So you can understand where I am coming from, it’s worth starting with a bit of background on our business. Tiller Rides was founded back in 2016 when we spotted a gap in the e-bike market, which is currently the largest growth sector of the bike industry. Our Perth based team have since developed a unique urban e-bike (we call a Roadster) that brings together style and an unrivaled set of useful features that make it suitable for everyday people to use for any occasion. By making riding appealing to almost anyone we are achieving a range of business goals including: combating traffic congestion, encouraging greater health and wellbeing, and reducing carbon emissions. 

Since completing the design work earlier in the year, we have been pre-selling the Roadster. The next step is to set up the production line and roll them out onto Australian streets. We are raising the funds to set up this production line via equity crowdfunding. 

While our $1 Million worth of first round of investment came from private investors, we chose equity crowdfunding for the second round because it enables backers to invest as little as $250 and so means a large number of people from all walks of life can be part of the business. Equity crowdfunding will therefore not only raise funds but also build our brand and our community of aligned long-term brand advocates right across Australia. 

In addition, through the offer of a range of investor rewards including 50% off a Roadster with a $5,000 investment and a free Roadster at $10,000 (and two Roadsters at 50K), we will also generate sales and increase the number of people riding our first production run of bikes. This increase in product on the road is particularly beneficial to a B2C business like ours who plans to offer test-rides and sell most of its products via our rider community.

Invest in the crowdfunding campaign

It was difficult to ascertain what it would cost to run a successful equity crowdfunding campaign before we started which made the decision to undertake one quite difficult. Our experience has been that to do it well, especially when raising an ambitious amount of capital such as $900,000, you need to make a significant investment of time and money before and during the campaign to make it a success.

Some of the larger costs include: an upfront payment to the crowdfunding platform, a percentage of investment at the end, scriptwriting and producing the crowdfunding video, writing and graphic designing the offer document, lawyers fees to check the offer document and create a CSF ready constitution, public relations (PR) agency fees, digital advertising spend and probably the biggest cost for us, the investor rewards.

If it wasn’t for the collateral benefits of brand building and sales we would have found it much harder to justify the high cost of running our equity crowdfunding campaign. This means that  equity crowdfunding is generally less appealing for B2B businesses.

Prepare for something between a marathon and a sprint

While the time required to run a successful equity crowdfunding campaign varies slightly from platform to platform, it seems that most campaigns take around four months from start to finish. 

Generally speaking, campaigns consist of a two month preparation period, a four-week expressions of interest (EOI) phase immediately followed by a four-week raise period to convert the expression of interest people to investors. Four weeks seems to be the right amount of time for the EOI and raise phases as it allows time to build momentum and maintain a certain level of intensity to successfully find and convert investors. 

While we haven’t got to the end of our campaign yet, all reports are that the final forty-eight hours is when the greatest cashflow comes through. To make the most of the last 48 hours it is important to get as close as possible to your investment goal, or exceed it, before this period. 

Prepare to do the heavy lifting

What we and other equity crowdfunders have found is that while the support team behind equity crowdfunding platform will provide guidance on the various aspects of the campaign, it is you and your business that needs to drive the campaign and do most of the heavy lifting. 

As co-founder, and the most experienced capital raiser in our team, I spent around 60 - 80% of my time on the campaign throughout the four month period with other team members joining in as needed.

Build a great comms, PR and investor relations team

Once all the preparation is done and signed off by the crowdfunding platform it’s time to launch into the campaign itself. It’s at this point that the crowdfunding campaign shifts into more of a communications and investor relations phase. We found this to be a full-time job for at least one person on our in-house team. We also chose to have our digital marketing team member focus on it two days a week to tweak and keep our messaging fresh and relevant for each phase of the campaign. This ensured we maintained good communications with people who had expressed an interest in investing.

Make a great video

The most common piece of advice we got before embarking on the campaign was to create a great pitch video as it would become the centrepiece of the raise.

While investing in an expert script and production team to develop a video that effectively captured our company’s vision and goals was a lot of work, we found it to be crucial. The feedback we have got is that our investment summary video is excellent and is probably why potential investors expressed interest in up to $2.2 Million worth of investment in the four week EOI period.

Explore every avenue you can - but prioritise

To maximise our company’s chances of success, we have explored a range of avenues to promote the offer and connect with investors. 

Engaging with current investors and connectors as well as what we call ‘Investors in the Wings’ early on in the campaign provided a solid foundation of investment which inspires investors who are less familiar with our business to come aboard next.

In terms of locating new investors outside our current networks, we found social media to be the most effective avenue. Facebook has given us the most traction with smaller investors, as it allowed us to tap into a broader, more financially secure audience, while LinkedIn offered a useful way to connect with individuals who can offer greater investment.

We also thought out of the regular social media box and contacted people through angel investor platforms and groups. The most traction was from investors with aligned interests and values of improving health, wellbeing and the planet. We found ‘impact’ and clean technology investors to be particularly interested.

Leverage crowdfunding platforms to convert investors

Choosing the right crowdfunding platform is another success factor. We decided to work with Birchal, because they are based in Melbourne where we know there are a lot of people who ride e-bikes, and because of their history of engaging purpose-driven investors.

Other decision factors included their team having a stronger promotional and communications background than other platforms and the back end of their platform allowing us to communicate directly with investors, especially those who had expressed an interest, and those who had got stuck in the investment process. 

So, is crowdfunding right for your business?

Assessing the best way of raising your next round of capital can be a daunting task, so it’s important to arm yourself with as much knowledge and insights about different investment strategies to make an informed decision. 

Raising funds for Tiller Rides through equity crowdfunding has proven to be the right strategy to grow our community, our business and our brand but because all businesses are different it may or may not be the right choice for you. Hopefully the above insights will help you make an informed decision for your business.

Invest in Tiller Rides today!

If you’d like to invest in Tiller Rides, visit our equity crowdfunding page on the Birchal website.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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