Choosing which avenue to drive down when seeking funding for your startup is a headache, but in recent years the options have at least increased.
Angel investors exist in both individual terms and as part of groups, such as HBAN and its sister organisations throughout Ireland.
VCs, while coming and going in recent years, remain plentiful both in Ireland and beyond, though the thirst for technology startups – as disruptive as possible – is shifting as the stage at which they look to invest gets later and later in a startup’s cycle.
Then there’s crowdfunding, with multiple platforms emerging in recent years that allow businesses to both raise funding, and engage with their customers, each at the same time. It is this stage that is garnering growing attention recently.
In the past 12 months, HouseMyDog, Exceedence and Trezeo have – from NDRC’s portfolio of companies – each trodden this path to great success. However, despite their almost €1.5 million raised, through more than 1,000 individual investors, these companies know that crowdfunding isn’t a quick fix.
We thought it was a great, user-friendly idea- HouseMyDog
‘No-brainer for B2C’
“It is well-suited to some,” says James McElroy, co-founder of HouseMyDog, which last summer raised well in advance of €500,000 through Crowdcube, “but not everyone”.
HouseMyDog is an online service that connects dog owners with vetted dog sitters across Ireland and the UK. HouseMyDog is, also, the ideal business for crowdfunding investment. A B2C operation, with an extensive customer base and a business that’s as easy to explain to people as humanly possible, the McElroy brothers (James and Tim) knew early on that this was the right process for them.
“We felt we had our own community already built up, so we thought crowdfunding works well with our particular needs, certainly for a B2C play,” says James. “We also liked that people get the idea quite quickly, we thought it was a great, user-friendly idea.”
Armed with a significant user base, an attractive proposition, and a raise target of far below the final figure, the duo put in the hard yards prior to what was, ultimately, a very brief campaign.
“We had met representatives from Crowdcube and Seedrs [the two main outlets for crowdfunding investment] at investor events at NDRC, and had discussed it with both of them. They both then approached us, wanting us to be their first Irish company to raise through the platform.”
Part of a round, not all of it
Going with the former, the duo went about creating an attractive video to bolster their campaign, and made a decision that proved crucial to their success: they engaged with traditional investors, so that the round wasn’t entirely crowdfund-based. Crowdfunding is only ever part of the round.
“It took maybe six-to-eight months, from start to finish,” says James. “Crowdcube will help you a bit, bring it to their community for example, but they won't market you. A lot of that will fall to you and your team.
“People see it as an easy way to raise money. And, while we found it a great way, too, there is a lot of work. You're losing the personal aspect, for example, as you’re reaching out to people you have never met before.
Have money ready to go
“So things like having a good video is important. I also think you should have at least 65-70 per cent of the money brought to the table yourself, first. People see that, they see momentum, they follow.”
If you have angel investment, you can log that as part of your crowdfund round, with similar hoops to jump through on both Seedrs and Crowdcube, should this be a tactic you wish to utilise.
“We went into it seeking X through crowdfunding, having already lined up Y via angels. However, once Crowdcube got going, our angels decided to invest directly through that platform instead. It was all already in place, term sheets were designed etc,” said McElroy.
HouseMyDog had 70 per cent of their initial target raised prior to the campaign going live. The company got the remaining 30 per cent of their goal, followed by an awful lot more, in less than a week before it closed the campaign down.
Of course, it’s not always that quick. Earlier this year Exceedence sought to raise £250,000 on the same platform. The company’s 30-day campaign eventually ran out to close to double that – as a few obstacles hidden from view got into the way.
“Every campaign is different,” says Ray Alcorn, CEO of the company, with Exceedence eventually soaring past its initial target, much like HouseMyDog, to reach £325,000 in total. Exceedence aids commercialisation and investment in the renewable industry by providing financial planning, evaluation and optimisation software.
“We hit a sticky patch in the middle that we had to work our way out of. We have learned that this was because we launched in August and, for a time, nobody was getting investment then.”
That ‘sticky August’ wasn’t an isolated Exceedence incident, it hit almost every company, as both Seedrs and Crowdcube felt the heat for a few weeks as holidays took hold, and interest waned.
“I was monitoring other campaigns – you should always keep tabs on what other people are doing – and nobody was shifting for a few weeks. Then, as the schools got back, and people returned from holidays, it all headed back in the right direction,” says Ray.
For Exceedence, Crowdcube provided a consultant to help navigate through this unknown terrain. For 10 weeks, Ray and his team were trained up on how to crowdfund – almost entirely under the premise of ‘be prepared’.
“We made the video, obviously, but then there was resizing it all for your various social channels, imagery, messages, news updates, Mailchimp activities, Facebook advertising. These were all planned in advance of the campaign. Very little is left to chance.”
Even with all the planning, the financial and time commitments, and the ‘pre-order’ approach to angel investments throughout the campaign, tricky spots like the slow August do emerge.
“Looking back to August, we reflected on it. During that spell we did face-to-face events, webinars, I went to London for a meet the founders’ evening, we did on-to-ones, we released news to the press, we spoke to industry-targeted media, Twitter posts, Facebook ads, LinkedIn ads – we’re raising our profile, staying relevant.
“This is something we learned while at NDRC, you have to constantly move the needle.
“When you’re dealing with a VC fund, you are slowly making progress. You meet up, they step back and expect some progression, you meet again. It’s lengthy. For a crowdfunding campaign it’s exactly the same, but it’s condensed into maybe a month.”
Trezeo successfully raised through Seedrs, largely through the same gambit of obstacles and alleys, with several key learnings derived from the various successful campaigns.
Some general tips for raising via the crowd:
- Due diligence is done in advance
- Content is king
- Engage with your current crowd, engage with your investors
- Don’t sit back
There are various areas of concern for companies going down this route. For example, collecting the money after the campaign ends is not an overnight experience, with an awful lot of chasing to do. The hard work or raising via traditional means is condensed for a crowdfund campaign, but the tail is still enough to take up all of your business's time and resources.
Elsewhere, when the campaign drags, how do you get people excited again? A great degree is taken out of your control.
Earlier this year, a US-based founder of a company already backed by $17 million in recently raised funds, wrote of his reasoning as to why he immediately sought more through the crowd. Money wasn’t the consideration, building a community was.
“When someone invests, they have ‘skin in the game’ beyond consumerism,” said Ajay Radav, founder and CEO of Roomi.
“Investment makes someone a brand ambassador and changes their perspective on the relationship they share with that brand. If they believe in a company enough to put funds towards its success, they’ll be the first to talk about it with others.”
Radav’s idea is all well and good, but the resources required – both financial and time – could prove too much an ask for some.