The main reasons that campaigns fail before they even begin
At the end of February, we hosted our first Equity Crowdfunding Workshop with special guests from the equity crowdfunding platform ‘Crowd For Angels’. And the most shocking statistic that we heard?
Only 8%-10% of applicants to the platform get to launch their crowdfunding campaign!
This means that there are approximately 92 businesses out of 100 that don’t even get to launch a campaign. Let alone successfully reach their target.
To make sure that you are among the 8% who launch their crowdfunding campaign, I put together this article, so you can avoid the usual snagging points and concentrate on smashing your funding target. It will take you 3 minutes to read but it could save you hours, days, maybe even weeks of wasted time.
So, what are the main reasons that business campaigns fail before they even begin?
We’re here to give you the inside scoop.
1. Be upfront with the equity crowdfunding platform of your choice
First and foremost, you have to be aware that the platform you apply to will check your application. And as you go through the application process, they will check every little detail about your business. It’s best to be upfront about any problems you had or foresee having, so you can all work together to solve these issues.
2. A lack of capital invested into the company by the directors and founders
An investor will be reticent to support your business when you don’t have your own skin in the game. If you believe that you can grow and be successful then why don’t you have any money invested in it? It’s a fair question.
3. A large outstanding loan that can swallow the incoming Finance.
A lot of businesses turn to crowdfunding when things are going bad in their finances which leads to a diminished trust from investors. I mentioned this before and I’ll mention it again – crowdfunding should be a business decision. It is an alternative financing option, so just as you’d think through the pros and cons of getting a loan from the bank, you need to think through the pros and cons of giving up a piece of your business. So, get your finances in order and then launch your campaign.
Also, if you have an outstanding loan, this will only increase the amount you have to ask for, so it can cover the previous business costs.
4. Complex company structures and obscure securities
The easier it is for an investor to understand your company structure, the better. If you have multiple shareholders holding different stakes in your company, investors will see a messy layout and will simply not trust it. So, remember, simplified shareholder agreements make things simple for everyone.
5. Multiple directorships, Red flags, Liquidations, CCJs and dishonesty
This point leads back to being honest about your company, not only to the platform but to investors as well. It’s better to be upfront about problems you struggled with and managed to fix, rather than not mentioning them, hiding them and hoping they don’t get discovered. If potential investors discover any issues, they won’t give you the benefit of the doubt, they will simply move on. Or worse, make the discovery public for every single one of your potential investors to see.
Having multiple managing directors can be another red flag, as it can lead to questions about your personal ability to choose the right people for the right job.
In the end, a big part of getting to a stage when you can successfully launch your equity crowdfunding campaign is talking to the platform of your choice. They have seen hundreds, maybe thousands of projects and they will be able to give you an informed opinion on whether or not you’re at the right stage of your business for this.
And don’t be afraid to ask. This is your business we’re talking about, you need to make the most informed decision. If a platform does not answer your emails or calls, you can simply move on to another one. A serious business will take care of its clients.