My company, the online estate agency eMoov.co.uk, recently ran a successful crowdfunding campaign, which ended up raising £2.6m for our business and being the fourth biggest equity share raise in Crowdcube’s history.
I have since been asked by a number of entrepreneurs to share my experience…
The preparations
I first thought about crowdfunding in January as part of our previous fundraising, but that round ended up being oversubscribed with institutional money so we didn’t need to pursue it. The preparations for this round started a couple of months before the campaign, but the real work was only in the month leading up to it.
The first step was to see Crowdcube and talk to them about our proposition. You spend a week talking about what you are doing, discussing your valuation, and thinking about the amount you want to raise and whether you want to overfund or not.
We then took a week to write the pitch. This needs to be a detailed document about the background of the business, current investors, the solution to the problem your business is solving, and the financials.
Crowdcube are very hot on their due diligence so what you say must be true. You can’t just say that you are going to float on the stock exchange in two months’ time at a valuation of a billion pounds. Your forecasts have to stack up and it must be quantifiable and justifiable.
In addition to the pitch, the video is a must. We spent a lot on ours and needed about 10 different edits to get it right. You have three and half minutes to put across your history, the size of the market, your traction and where you want to go in terms of the exit strategy.
But, the real ‘secret sauce’ in the preparations was making sure that we were warming up the people we knew – whether that’s existing investors, your own personal networks, customers, or staff.
We approached them three or four weeks before we went live. We went live on a Friday and reached 55 percent of our target by the Monday morning, all from what we engineered through our existing contacts.
Promoting the campaign
Our PR was very good. We were in all of the trade and business publications and our social media campaign was everywhere. We also paid a considerable sum for a four-week London underground advertising campaign. It was a risk because it’s a big outlay if you end up not hitting your target.
We also held three investor events. I made it less about presenting the business and much more about the team, which I believe is very important in any business. I introduced them and encouraged questions from investors. Each event lasted two hours and only 10 minutes was spent on the pitch. The rest was introducing the team and Q&As.
We reached out to our customers too. We hit our database with a very light hearted, warm invitation to invest which resulted in investments from several people who had previously sold their homes through us.
The buck stops with you
You have to be prepared to work hard. Around a third of my time every day was devoted to the campaign. I had to answer lots of questions by email, telephone and through the investor forum on our Crowdcube page. I made it a policy to answer every question myself.
I’m sure it’s rare for the CEO to do that, but I think it’s one of the reasons why we succeeded. I think the fact people could see it was me responding looked better, but there were also some very challenging questions which I felt only I could answer. One weekend, a guy asked me nine questions one after the other. It took up my entire Sunday afternoon. But, because it was a public forum where anyone can go in and see it, I had to work hard to convince the crowd that were watching.
I’ve been asked whether I had answers prepared, but I think if you have to prepare answers, you don’t really know your own business – and that, for me, is a reason for someone not to invest.
The valley of death
In crowdfunding you encounter a phenomenon called ‘the valley of death’. It’s pretty horrible. Once you get to about 65 %, which we did in our first week, you get a reduction in the amount of people investing. All the people –your friends, family and staff – that you had lined up early have invested and you’re left with the ‘fence sitters’ who think that it’s an interesting campaign but want to see how well you do before investing.
We ended up in this vicarious circle where between 65% and 70% of our target, investment hit a brick wall.
You think you’ve really worked hard and then one day you’ve only raised £400 and you’re thinking crap, what’s going on here? Are we going to get to 100%? What am I going to do?
You then have to double up your effort, dig back into your personal network, ramp up social media, and really push.
Light at the end of the tunnel
It took us 10 days of working hard every day to convince more and more people to invest before the momentum started building again. But, once we got to 85% it started to get easier. By the end of week two, we reached 100% and it was real elation.
You feel you’ve proven your concept and validated your valuation and so on. From there, it suddenly gets much easier. You can take your feet off the peddles a bit and let things coast. You still answer the questions, you’re still being diligent and still applying yourself to overseeing and nurturing the campaign, but once you have that momentum it literally becomes a ‘herd mentality’. That’s when we got some really big chunks.
Once you reach this milestone and investors are worried that you’re going to close the round, I think it’s the fear of missing out which drives them.
We could have closed the round at any time but we made the decision to continue to the end of the 30 days. The last week of the official campaign was incredible. We had VC from Switzerland ring up, Startive Ventures. I spoke to him for a few minutes, answered a few email questions and he invested £250,000. And then we had a series of big investments from someone connected to the Royal Family.
Because of the momentum we had, once we got to the end of the campaign, Crowdcube persuaded us to keep it open for a further week. In that last week, we raised another £300,000 to end up with over £2.6m.
We reached more than two and half times our target and I had lost the sweepstake.
Final thought
Crowdfunding definitely works if you do it right, but you have to understand that it’s not as easy as it looks. If you just write a quick pitch page and start from zero you’ll fail. You’ve got to get a substantial part of you initial target pre-committed – and you’ve got to work damn hard and do it with a good team around you.
Russell Quirk is CEO and founder at eMoov