Deciding between right equity crowdfunding platforms is absolutely vital. If you aren’t listing your offer where your investor avatar naturally congregates, it will be much harder to attract the money you need to have a successful offer.
One of the most important things to realize about equity crowdfunding platforms is that you can only list on one of them. So you have to make your choice very carefully. Once you’ve signed the paperwork and committed, there’s no turning back! You’re locked into it – til death do you part (or, more hopefully, til successfully raising money do you part!)
The trouble is, there are many equity crowdfunding platforms to choose from. And at first, all of them look pretty similar – they all have professionally-built websites and feature most of the same site functionality – hosting video updates, a blog, social media links, a section about the team, and so on.
Given their apparent similarity, how can you tell the difference between great equity crowdfunding platforms and the duds? This guide presents the exact steps to follow to distinguish equity crowdfunding platforms from one another. This post is long and detailed, but by the end of reading it, you’ll have everything you need to do your own analysis of all the options!
Can They Facilitate What You Want To Do?
The first and most important question to ask about equity crowdfunding platforms is whether they can actually conduct the kind of offer that you want to run.
Because they are dealing in offers of securities, most equity crowdfunding platforms are only licenced to operate with startups & growing companies that are incorporated in the same market as they are. If you are an Australian company, this immediately rules out working with an American equity crowdfunding platform, for instance. Do this simple check first, before conducting a time-consuming evaluation of everything else.
There can also be investor restrictions – for instance, if you are a UK company, can the platform accept only UK investors, or can the investors be from all over the world? This can be a really important factor to weigh up if a significant part of your crowd is from overseas. If you want to access investors beyond your national borders, make sure to ask the equity crowdfunding platforms whether they can facilitate this. From the perspective of startups and growing companies, access to a more diverse set of investors (beyond only local) provides entrepreneurs with more choice, higher valuations, and a better chance of success.
Different equity crowdfunding platforms also have different policies on a multitude of other things, including:
- the minimum investment amount
- running private offers vs. public offers
- offering different classes of shares (and whether this is allowed or not)
Some equity crowdfunding platforms offer a broad range of funding options, while others prefer to run a more standardized form of offer, which they will be reluctant to deviate from. If a platform can’t facilitate the structure that you had in mind, then you need to consider how important that structure is to you. Is it a showstopper, or can you adapt your stance?
If you are sure that you can’t work with a given platform’s hard requirements, it makes things very easy – you can strike them off your list. This makes doing the rest of the analysis much easier, because you’ll have fewer equity crowdfunding platforms to run the rest of your evaluation on.
Equity Crowdfunding Platform Size
A simple, over-riding rule to keep in mind is: you should probably use a bigger platform, unless you have a very good reason not to. Bigger equity crowdfunding platforms have more of an investor audience, more experience with running campaigns, and a larger team that can assist as you prepare to launch. They also tend to be better-resourced, meaning they have more templates you can draw upon, and have invested in a better user-experience for their website.
Every equity crowdfunding platform will stake a claim of being the biggest and/or the best by some measure – this is something that I know well, from investment banking, where we would use every trick in the book to make ourselves look better than our competitors. Equity crowdfunding platforms do the same. But when you drill down to compare the important metrics side-by-side, you will be amazed by how big the differences can be: the biggest platforms may have done hundreds of offers and raised multiple millions, while the smallest may be brand new and yet to raise any money at all.
One of the main justifications of an equity crowdfunding platform (and the fees they charge) is being able to do more than just provide the technological means to allow for online investment. The best platform should also be able to bring their audience to your offer. This is why you want your campaign to appear where the biggest and most relevant investor audience is.
Think of it this way: let’s say you have 10,000 people within your crowd already. Any decent platform can facilitate reaching those 10,000. But say that one platform has an investor database of 20,000, and another has a database of 50,000. Would you rather your offer was seen by 30,000 pairs of eyes, or 60,000?
It is not as simple as automatically assuming that the bigger equity crowdfunding platform is automatically better. Maybe the platform with 20,000 is more of an exact match to the kind of investor avatar interested in investing in a company like yours, and/or tends to invest larger amounts. But still, the sheer size of an investor audience matters.
Look for equity crowdfunding platforms with their own investor audience. If you are needing to do all the heavy-lifting of bringing investors to your campaign yourself, then the platform’s value proposition becomes very questionable. The business model of an equity crowdfunding is to be a middleman – meaning they need to be a place for both buyers and sellers of crowdfunded equity to meet. Without the buyers of equity (investors), it’s not a good place to be a seller.
Here are some ways to determine the size of a platform:
- How many equity crowdfunding raises have they done?
- How much money have they successfully raised?
- Number of social media followers.
- Number of offers currently live.
It is not always easy, or even possible to get all of these figures. But the larger platforms will be very vocal about how many millions of dollars they have raised and all the hundreds of businesses they have already helped in the past. These established platforms take their size and track record as a point of pride to shout from the rooftops, hoping that it will attract the best startups and growing companies to list with them. The data will probably be hardest to get from the smallest platforms.
Investor-Led or Entrepreneur-Led
There are two basic philosophies that platforms follow with equity crowdfunding.
- “Investor-led”, where a platform insists that a company secures a “lead investor” (such as an angel investor or venture capital firm) to invest alongside the crowd. Investor-led crowdfunding platforms are very strict on the requirement for an offer to have a strong lead investor in order for it to even go live in the first place. Getting a lead investor isn’t an easy thing to do, but it should result in a ‘tighter’ offer because the valuation and other investment terms have been negotiated by someone who is more sophisticated than the average member of the public. Investor-led platforms hope that this will result in a better reputation from investors.
- “Entrepreneur-led”, where a platform takes the approach that crowdfunding should be all about democratizing finance and letting the crowd decide, and not being restricted from getting their shot through the platform acting as a gatekeeper. Entrepreneur-led offers allow the company to can set whatever valuation and other terms they like. Then the crowd, in its wisdom, will either invest or not. The barriers to getting listed on a platform like this are lower.
If you have a preference about which kind of platform you want to be associated with, ask about the platform’s attitude to offer curation. Do they heavily screen the companies before allowing them to go live, or do they have more of an open attitude to companies being free to list with greater freedom?
Support Services Provided
Will the platform expect you to bring the offer together largely by yourself, or will they hold your hand throughout the process?
It all comes down to how much manpower the platform has in-house. The better-resourced platforms will be able to help out a lot more with support services such as web design, social media, and marketing capability. They may have well-advanced legal templates that you can use to cut down on your legal expenses. Some even will shoot your equity crowdfunding video for you!
To find this out, the best thing to do is ask other startups and growing companies about their experience working with the platform in question. Most founders who have been through an equity crowdfunding offer will be only too happy to share their candid feedback on what it is like to work with a platform that you are considering.
Some questions to be asking:
- How much time did they devote to them and their offer?
- What services were included in the package of working with the platform?
- What was their level of professionalism?
- How well did the platform support them?
Importantly, get a mixture of both successful and unsuccessful campaigns. Remember, the true test is not how well a platform supports a campaign when it is doing well – it is how well they support a campaign when it is not.
Success Rate of the Equity Crowdfunding Portal
The percentage of campaign that have reached the minimum target is a key indicator, because it points to the odds that your own campaign can expect to have if you list your campaign with them. To find this out, ask how many campaigns have reached the minimum, and divide it by the total number of campaigns that have gone live.
What is a “high” success rate? As a general guide, an 80% success rate is very high, while 30% is at the low end. But is also important to look deeper than the raw percentage, and dig deeper into the reasons for the success rate being what it is. There could be very good reasons why one platform has a lower success rate than another – maybe they work with companies at an earlier stage, which are just less likely to fund. Entrepreneur-led platforms (as defined above) also have a naturally-lower likelihood of success, because the barrier to listing in the first place is lower.
If a platform has run a lot of offers like yours in the past, then all else equal, they will know more about what it takes to do one successfully and will be better-e quipped to guide you.
Alex Zivoder of goHenry raised £3.99 million. He said, “We did our homework on other platforms, but ultimately decided to go with the one we did because they seemed to have facilitated the most raises that were like ours. We made the assumption that the platform with the most experience with our kind of raise would be the one best placed to help us”.
Some platforms operate a “negative screen” – as in, won’t accept companies in certain “blacklisted industries. Other platforms insist on a “positive screen”, where they only accept companies from a particular sector – e.g. technology (like dental needles, smart card printing & production or plasma cutters), or agriculture, or fintech. Other platforms are more generalist.
To find out a platform’s industry specialty, look at their past successful crowdfunding offers. Can you find companies in a sector which are similar to yours? It may be difficult to find an exact match, but the closer the match you can find the better.
Stage – Crowdfunding For Startups, Or Later-Stage?
Certain platforms are best at helping startups get their very first seed capital, while others are more about providing already-established businesses with the capital they need to scale up.
To find this out, look around the platforms website. They often provide some commentary on their preference. The typical investment amounts also provide a clue. As a rough-guide:
- If the typical size is under US$100,000 (or foreign equivalent), it’s fairly early-stage.
- Between US$100,000 and US$1,000,000 (or foreign equivalent) is a company with decent traction in terms of revenue and customers.
- Above US$1,000,000 (or foreign equivalent) is a quite well-established business, with plenty runs already on the board.
An equity crowdfunding campaign takes place over many weeks, featuring demanding deadlines, tough conversations, and high stakes. This time needs to be spent with people you can maintain a professional working relationship with. Go and meet the actual team members that you will be interacting with during an offer and see if you get on well with them. You will want to work with people who fill you with confidence.
Don’t overlook the human element. If you are older and of more of a traditional bent, working with a platform where everyone seems to be in their twenties may not be the best. If your working style clashes with that of the platform, it will be practically impossible to create an effective campaign.
Yes, the fees matter! And the point at which the fees are charged matters too. Some platforms charge an initial application fee in order to even begin assessing a company’s suitability for equity crowdfunding. More and more platforms charge something upfront, in order to make sure that those that apply are serious about it. By applying this initial filter, the equity crowdfunding platforms hope to screen out the tyre-kickers and spend more of their time with the companies with a realistic chance of going on to actually raise money.
But the standard equity crowdfunding business model is to charge the bulk of their fees as a “success fee” – i.e. as a percentage of total funds raised (typically between 5 – 10%). This means the fees are only payable if a raise reaches its target. If you have a larger raise to do, and are being courted by several platforms, it may be possible to negotiate them to knock a few points off their “standard” rate.
You should also question the proportion of the raise which the platform plans on charging a fee on. Imagine you are trying to raise US$500,000, and you have already found an angel investor willing to contribute US$200,000 of this. Assuming that your offer is successful, does the platform plan to charge its fee on the full US$500,000, or only on the US$300,000 that wasn’t funded by the angel investor? Different platforms have different policies on this, and again, see if there is any room for negotiation.
Fees can be charged at other points too. Some platforms charge a fee at the point of a successful exit being achieved (known in the industry as “carry”). They take the view that this better aligns the incentives of the platform with investors making a return. Whatever the justification, make sure that you understand the full picture of what fees you will be charged and at which points, so that you know what you are in for.
How Will They Promote You?
It’s also really important to know where, on the equity crowdfunding platform, you and your offer will appear. Larger platforms can have multiple offers going on at once. If this is the case, appearing as prominently as possible is the key.
Something like 60% of clicks are on the first result of Google, and 90% of clicks come on the top 3 results. Results on the second and third page of Google get negligible traffic. Apply this lesson to equity crowdfunding, and you can see why it’s important to ask about getting featured on their homepage, or on the first page of the list of live offers – especially if there are dozens of offers going on at the same time.
A large platform might have a big audience, but that’s only going to do you any good if they intend to let you actually use it. It’s therefore worth:
- Signing up to their e-mail list and seeing how they promote the companies raising funds. How often? Do companies get their own dedicated e-mail feature?
- Following them on social media, and seeing how much access the companies get. Do they share and re-post campaign updates, or are they more protective?
- Attending a pitch event. How many investors turn up, and how long is the time given to each company to pitch?
Overall Platform User Experience
Remember, equity crowdfunding will see you sending members of your own crowd to the platform to invest. You want to make sure that there is a good experience for investors once they are there. So try going through the process of investing in a company already listed on a platform. You don’t need to go through and actually invest, but you can still get 90% of the way through the signup experience to check the overall impression. Is it easy? Remember, this is what your investors are going to go through themselves You don’t want to send people who are your customers and suppliers to a platform with a poor user experience.
And beyond the pure functionality of the user experience, it’s worth seeking a platform with a strong branding match too. If you are a young, fun, company, with vibrant, playful branding, it will be strange to send your crowd to a platform with overly-corporate branding.
All of the above questions have been assembled to frame up and formalize your thinking around a single, bigger-picture question:
Which Platform Gives You The Most Confidence In Their Ability To Get The Job Done?
The range of platforms can seem overwhelming, but there is no better use of your energy than getting it right. The amount of variation within the industry necessitates doing a thorough evaluation of all the different options. Everything else that happens in your offer will flow from which platform you have by your side. Choose carefully.
Finding the right crowdfunding platform is a lot like dating before marriage. Make a good first impression, and remember to find out about them, just as much as they’re finding out about you. Ask the tough questions and reveal what’s unique about you – that’s the way to find a strong match before tying the knot and going together with them, hand-in-hand, into the rest of your offer.
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