Equity crowdfunding, where companies offer equity in return for financial investment, is a new and relatively unchartered means for raising capital in Canada. It’s an attractive proposition – businesses capture a wider market of potential funding and investors get access to more interesting investment opportunities.
At SeedUps.ca, Canada’s first equity-based crowd-finance platform, we’re fielding hundreds of requests from startups and small businesses looking for a new way to raise money. While the crowd can be a powerful resource, there are also certain steps that a small business must undertake to raise capital:
1. Understand the basics. The term crowdfunding is tossed around, usually in reference to ‘contribution-based’ crowdfunding platforms like Indiegogo or Kickstarter where donors give money to support an idea they believe in and get a reward, perk or prototype in return. Equity-based crowdfunding, however, is where investors have the opportunity to invest in a business and receive equity. In other words, it’s about being an owner versus a donor.
2. Can you raise capital from the crowd? Not all companies are suited to raising capital via equity crowdfunding. You need a strong social following and a compelling story that is easily told through social media and video. Investors typically invest in companies they are interested in or have products or services they want to buy.
3. Structure your capital raise. Create a three-year plan to determine your company’s capital requirements over the near term. How much money do you need to raise and should it be a combination of debt and equity. Surround yourself with advisors that can help you navigate through your options.
4. Get your house in order. Many small businesses interested in raising capital are unprepared. The crowdfunding platform and potential investors will ask tough questions about your business model. Get your minute book, corporate records, financial statements and other corporate governance records in order.
5. Prepare your offering documents. You will need to consult legal counsel to prepare the offering documents in accordance with securities regulations. You’ll need a business plan, offering memorandum, subscription agreements, shareholder agreements, investor deck and a compelling video to tell your story.
6. Build your network. Start engaging your network to help fund and promote your deal. 30 per cent of your capital raise will come from your own network and they need to tell everyone they know too. Get active on social media and encourage your early backers to share their passion for your business.
7. Create a marketing action plan. Social media, email campaigns, blogs, Google Hangouts and local events are all tools to market your company. Plan the next 90 days to keep your story fresh and relevant. Make sure you’re getting as much exposure to your deal as possible.
8. Monitor the investor forum. Potential investors will have lots of questions and most platforms have a discussion forum where investors can as questions and share with others in their network. Be sure to promptly respond to keep the crowd engaged.
9. Be visible. Become a media darling. Send out press releases on exciting developments at your company. Update your website, comment on articles and blogs of those you follow. Attend events and tell your story. Practice your elevator pitch every day. Raising capital is difficult. I know you are busy running your business, but you won’t have one to run if you aren’t adequately capitalized.
10. Have fun. Seriously. I’m trusting the reason you are seeking investment is the fact that you are passionate about your company and believe in what you are doing. Why else would you do this if you weren’t having fun!
Sandi Gilbert is CEO of SeedUps Canada, Canada’s first equity-based crowdfunding platform. You can reach Sandi at @sandigilbert or @SeedUpsCanada.