The current funding environment is making capital raising more difficult for Australian businesses as
investors are tightening their wallets. However, record-breaking raises have taken place despite the current fundraising environment, like Hellyers Road Distillery who raised $4.3m, breaking the record for the largest alcohol raise of all time (the most active sub-sector in Australian equity crowdfunding).
Why is this?
We have identified goldilocks conditions that can help predict if a campaign will be successful. Not all companies will fit all the criteria, however, the more in line with these ‘goldilocks conditions’ the more likely a company will have a successful campaign.
How to Optimise your Crowd-Sourced Funding Campaign: Outline of Goldilocks Conditions
Compelling Story
This is the most important part of an crowd-sourced funding (CSF) campaign. Investors want to back a business they can relate to, that they want to see success, and a company that has a story.
It could be your history as a founder. Potentially you have had a colourful background, created a business out of a need in your personal life or you are family owned.
It can be your history as a company. You may be solving an issue that is helping society, a strong culture that has been built or a local presence that has been fostered.
It can also be your growth journey to date. You may have signed a large distribution agreement, grown 100% YoY or had a viral marketing campaign.
This story needs to be told in a compelling way through your marketing efforts, and how you present your offer.
Engaged Community
Momentum is the key to any campaign and getting early traction from supporters that you already have helps to build momentum which encourages investment from people who have invested in other OnMarket campaigns. In fact, 70-80% of all investors come from your database or a connection of your database.
In previous campaigns, investors from other OnMarket campaigns will add 20% - 30% of the funds raised from your network. The contribution from our database is correlated with how effectively you attract investment from your network and marketing.
Your community and/or database is of high importance when it comes to raising capital as they are a warm audience. People who purchase from you, follow you on social media, leave an inbound enquiry wanting to invest, members of the football team you sponsor, or your family and friends. These people are going to be the easiest to convert.
If you already have a large community, especially if that community is passionate about your product or service, you are much more likely to have a successful campaign.
Revenue >$1m
The natural evolution of equity crowdfunding is moving away from backing pre-seed startups and is pivoting to focus on high-growth early-stage businesses that already have traction. Investors’ biggest concern is that they will lose all their money in the case your business ceases to exist. A business with over >$1m has shown they have a product-market fit and are more de-risked than a pre-revenue business.
Simple Business Model
Investors need to be able to easily understand what your business does. This is crucial as investors need to know what they are investing in before they make any decisions. Complex businesses with technical nuances struggle to connect with a large audience (aka a crowd), commonly because of the business model. You need to be able to explain what you do in a maximum of two sentences - if an investor cannot understand the business purpose immediately, they will find it too hard and move on.
Disruptive / Point of Difference
Investors want to know there is the potential for your business to experience exponential growth and that they could receive a reward for the risk they are taking. You need a point of difference or disruptive business model to convince an audience that your business is capable of this.
Attractive Investor Rewards
Investors often are or become customers of your business. A key reason they are investing is to feel a part of your business. Complementary products, merchandise, discounts, experiences, and access to an exclusive event or club are all ways to entice investors to convert. We have seen campaigns where this has been hugely influential to the number and investment size of investors.
Cornerstone Investors
Bringing onboard large professional or sophisticated investors brings validity to your campaign. To attract these investors, you should possess a clear roadmap for the future, detail potential routes for an exit event and have an attractive valuation.
Marketing Budget
Organically gathering 100s or even thousands of investors is very difficult, and in equity crowdfunding, almost unheard of. Crowd-sourced funding is all about momentum. Investors are followers and will often be convinced to invest because others are. This is why marketing is so important.
Marketing gives you the reach needed to have a raise at scale, helps with conversion, and builds momentum throughout the campaign. You should expect to spend ~2% of the desired amount you would like to raise.
Your business does not need to tick all of these goldilocks’ conditions for you successfully raise capital. However, the more characteristics that fit into the goldilocks conditions the more likely your campaign will be successful.
Below are some of our most successful raises, and which goldilocks conditions they had met.
Successful OnMarket Raises
To learn more about the process behind crowd-sourced funding, access our library of resources, and review success stories from others who have successfully raised via crowd-sourced funding, click here.
Contact Issac Newbold, at issac@onmarket.com.au to learn more about how to use equity crowdfunding to support your business’ next phase of growth.