Diary of an entrepreneur: What I learnt from crowdfunding
Floom founder Lana Elie reflects on the things she wishes she knew before taking to Crowdcube... and explains how she raised £100,000 over her target
Following her latest Startups blog post on dealing with investors and lawyers, Lana Elie now jumps forward in her start-up story to tell us about Floom‘s recent campaign on equity crowdfunding platform Crowdcube. In this honest account, Elie reflects on what she learnt from the unfamiliar process, reveals how she pulled off a hugely successful campaign, and offers advice to small business owners keen to take to the crowd…
I’d always anticipated this column to be a chronological account of the Floom start-up story. But since we’ve just finished a crowdfunding campaign and I’ve had a flurry of emails asking for advice on the topic, allow me to jump around slightly.
This post won’t be about whether or not crowdfunding is the way to raise, nor will it be secrets to success; but more a toolkit of what I learnt, and what I wish I’d known before. Even as a successful crowdfunder (is that a thing?) I still think the benefits are up for debate.
Define why exactly you want to crowdfund
When we decided to crowdfund we already had 75% of our total raise committed. We also had quite a few other investors in the pipeline who were close to saying yes. A large profile piece in This is Money was about to be published and so we weren’t actually sure we needed to crowdfund.
I’d heard a lot of negative things from VCs about crowdfunding, though I suppose if anyone’s going to feel negatively about it, it’s them. Furthermore, I felt pretty confident we could raise the remaining amount without it – so why did we do it?
- Put simply, Crowdcube has a big mailing list of investors – whether or not they invested, this was a way to get in front of them and potentially turn them into customers.
- Because of our marketplace model which allows us to support independent florists and undertake smaller funding rounds than competitors, we’ve always seen ourselves as ‘the people’s choice’. Allowing for florists and customers to buy into the brand, by right of equity ownership, was an attractive opportunity.
- Crowdfunding is a pretty hot topic for PR, and with Valentine’s and Mother’s Day around the corner at the time, I wanted a story that was guaranteed to attract press.
Personally, if your purpose is solely to find the full amount of funds you need, I wouldn’t do it.
Prepare for it to take up 100% of your time
…and I don’t just mean while it’s running. There’s no shortage of due diligence requirements in the run-up, and it took us about four months in total. Admittedly some of our timings were strategic, as we saved our launch for just after Valentines day (for the data) and just before Mother’s day (so we could generate sales).
So much of it, though, was preparing documents, having calls with the Crowdcube team, planning marketing and PR, and more.
And once we launched things got busier by ten fold. Business plan requests never stopped coming. I responded to these manually as I wanted to be able to track the process in a personal CRM when questions started trailing in. In hindsight, I’d have done this differently. I’d have set up a specific email address that had an auto response to those business plan requests.
Save the answers you give out somewhere, as you’ll find that many people ask the same things. This is actually great, because you do quickly realise where the weaker elements of the business plan lie as a result.
I used the Streak CRM plug-in with my Gmail to manage the investors (we got over 400 requests in the end), from B-Plan requests down the investment funnel. This was the best thing I think I did.
I followed up with each investor three to four times over the 30 days; I found often people forgot to review the business plan, or weren’t too sure how much of your time they should take, so they let it fall to the side. Depend on yourself to lead and inform these conversations.
Set your minimum target low
Hitting our minimum target felt scary. In fact, it happened a little last-minute in my opinion, and that’s not how I like things done. People seemed to be way more interested once we hit it; FOMO kicked in and we had £60,000 invested over the following 48 hours. We ended up hitting our maximum target early, and I had people emailing me to ask how it had happened and to see if they could still invest somehow.
Expect the investors to be a mixed bag
We all know I’m not a hugely experienced fundraiser – before this, there’d only been one other round. Yet a lot of the processes unique to crowdfunding made me really uncomfortable.
I had potential investors who wouldn’t meet, or wouldn’t do phone calls, only wanting things answered over email. I had people ask me outright what their financial returns would be. On some occasions I felt so uncomfortable advising them on things that I may have talked them out of investing entirely.
I had a lot (A LOT) of people try to sell me things… figure out how to determine who these people are rapidly, and don’t be afraid to forward on to the people who operate the crowdfunding platform for advice – they’ll have seen it all before no doubt.
Some of the larger investors didn’t even request a business plan or speak to me before investing. Others would demand a huge amount of my time and then invest perhaps £50.
Ask questions and prioritise investors
This brings me to my next point. When the questions start raining in, and they will, don’t be afraid to ask, “what ticket size were you considering investing?” Any good investor will respect that you have a limited time to close the round and that you need to prioritise where your time is allocated.
That’s not to say that value is always defined by investment size, but when you have an imminent target to hit… it kind of is. I spent a lot of time on smaller ticket sizes, which was fine in the long run because we hit our target, but it is absolutely one of the things I would have done differently earlier on.
Have back-ups from your existing network
Our campaign hitting over 50% funding on the first day thanks to pre-committed investment was really useful. It meant people were immediately interested, and the campaign was off to a really good start. We were in a strong position to talk to other potential investors in our own network as a result of that.
Ultimately though, the people who know you, trust you and have used your service or product – these are going to be the most dependable converters. Floom’s success was down to working with Crowdcube, taking their advice on what to do and how to do it. Ultimately though, it was about allocating that experience to our own network.
I had people in my personal network invest £7,000 and up, which they would never have done if Floom wasn’t on Crowdcube – perhaps it allowed those people to open up the conversation, knowing that their investment sizes were going to be accepted even though they weren’t in the £50,000-plus range.
Depend on yourself
After our overfunding kicked in, Crowdcube showed its true positives, but before that point it’s really just you and your own drive in play. At one point I was researching potential investors on Companies House – finding director lists for start-ups with similar business models, then scraping their email addresses off LinkedIn!
Ultimately, if you’re an entrepreneur then you don’t need me to tell you that your absolute best chance to be successful – whether in crowdfunding or anything else – is to do everything you’ve got to do. Don’t expect crowdfunding to be the final answer, it’s only another step in the larger process.
Are you interested in crowdfunding your business? Start right here.