How to grow a startup by crowdfunding
Crowdfunding isn’t just an alternative way to fund your startup. It’s a way to grow it.
Table of Contents
Jul 21, 2022
stratiphy is a (soon to launch) investment app for the everyday retail investor. It takes away the burden of having to research individual companies without the mass approach of big funds. The app takes risk and values into consideration, and makes reservations based on things you care about, like sustainability. Think of something in between big funds and apps like Robinhood.
The latter category makes you do everything yourself. A large fund like Vangaurd does everything for you. With stratiphy, you define your set of “rules” of investing and the app aids with their algorithms to execute trades for you. You can edit your strategy whenever you want, and also your “ethics” guidelines. They’re on a mission to democratize access to investing.
People looking to bridge the gap between beginner and more advanced investors. This means lots of millennials and Gen Z’s who have started on their investing journey.
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Raising a finance round is challenging, regardless of the type of business. For financial companies themselves, there is a longer launch period because of the tech and regulation restrictions. stratiphy was trying to get private investment, and was getting a lot of resistance because the fintech space is busy. They’d had enough feedback from peers and marketers who thought it was great, and recommended taking it to the community for funding.
They went to Crowdcube, a very popular and reputable crowdfunding platform in the UK for fintech companies – both to get users and investment. People who invest through crowdfunding want to use the product as well.
Crowdcube is different from platforms like Kickstarter and IndieGoGo in that you are giving away actual equity instead of just the product. The people who put in money are literally investing in the company. stratiphy gave away just under 20% in total to raise in the end. It’s up to the company how much they want to give away, and at what valuation. Their aim was to go for $200k in funding. 50% of this has to be self-funded from angels and investors before you can fund from the crowd. It’s a rule Crowdcube put in place to make sure companies have some traction by the time they get there.
To be an investor in Crowdcube, you have to be vetted on the site, but anyone can take part. You don’t have to be accredited. You can choose how much you can invest, going up to quite a large amount.For this reason, crowdfunding is a great way to build a community around both your product and your business.
stratiphy spent a lot of time and effort on making a video they thought would resonate with audience, as well as building up things on their social feeds. They started to give a couple local startup talks about the launch. The combination of all this, combined with pushing to get shares on LinkedIn and Twitter from investors paid off. So if you’re doing the same, prepare a lot of content prior to launch.
- This is raising the 50% on the platform from private investors before you go to the “crowd” through Crowdcube
- Raising this first part is free of fees on the platform
- This is when you push to the crowd on the platform
- If you can get into any featured emails of the platforms, it will be a huge boost.
- Think of it similar to Product Hunt. Try to weasel your way in to newsletter. Talk a lot to managers and move off momentum as it performs well. This is likely to help you out right at the beginning and right at the end (the campaign goes on for 30 days).
- Need to communicate really clearly with the platform staff to tell them what you are doing, especially when and asking to be featured. It’s relationship management.
- Apart from giving a couple talks in the local startup scene and universities (this did a lot and helped people boost), get in public publications and talks around your topic (in this case finance). As many in person things you can do, the better.
It heavily surpassed expectations!
The private part of the launch is the most stressful because if you don’t hit the mark, they may let you launch but the success will be lower. This part took the most time. Once on the platform, the momentum was wild.
They funded within 3 days of launching and overfunded by 200%, closing a round of half a million from dozens of investors from around the world. Some are interested in the product, some are interested in the investment opportunity.
The platform pushed them a lot, but worked well in combination with their own efforts specific to the industry.
Where you crowdfund and how you go about it will depend entirely on your product, goals and industry. You don’t have to go equity fundraise, for example. You could go the Kickstarter or IndieGoGo route for product side businesses. This is stronger for building a community that wants your product vs. investors interested in the business. For investors interested in Fintech, something like Crowdcube worked the best.
If you decide to equity crowd-fund, have a target and make it lower than you want to achieve. For example, if you want to rase $50k, ask for $25k and aim to overfund. This is just good marketing practice and makes the campaign seem more successful to other investors. It is pretty normal to set a lower target and use the momentum of overfunding.
You’ll get a lot of questions throughout the campaign, and you have to be as responsive and quick as possible. It sets a precedent for how you manage your business and investors. While the 30 day the campaign is live, it’s a TON of work. It’s basically a full time job to monitor and change campaign. You will need to make updates and engage communities in certain ways. Essentially, you need to be on call 24/7.
For example, during the private first part of the campaign, it was quite slow to pick up. They had lots of internal newsletters to send out internally that they had to change a schedule around, as well as conducting interviews of why current investors were interested so that they could get creative and appeal to others.
You need to know what your limit is. They closed once they reached 200% funding because they reached the end of the equity cap they were willing to give away. If the company does well, you can go back to crowdfunding at a higher valuation. stratiphy set their valuation amount based on benchmarks (you tend to give away 20% during a round), and there are clauses you can include like clawback equity you can take back.