The Rai$e Rundown: Recovering resources lost to the deep
Hydrowood is a Tasmanian company that has developed and proven the technology to remove remnant standing trees from hydroelectricity dams. Hydrowood then processes the harvested logs into high grade timber for furniture and architecture.
After eight years of research and development, Hydrowood has established world leading operations - from barge and excavator design to drying, processing timber and testing the timber’s applications. The Hydrowood process is now proven with approximately $2 million in sales to date, drawing the attention of some of the world’s leading brands and designers.
In July 2023, Hydrowood raised $2.1m from 622 investors with OnMarket. To support the education of founders interested in raising capital via equity crowdfunding, we interviewed Andrew Morgan, Co-Founder of Hydrowood.
What were Hydrowood's goals for the CSF raise?
Our primary goal was to develop our working capital so we could scale operations. We also wanted to obtain a good spread of shareholders to prepare for a potential ASX listing in two to three years. With 622 shareholders I think we've done that.
Another marketing-focused goal, which was of equal importance and I suppose why equity crowdfunding was appealing to us, was to build our community. Hydrowood is a retail product and so now we've got 622 brand ambassadors who will purchase Hydrowood timber or tell their friends about Hydrowood, which will help with business growth and exposure.
And it's already had the desired effect! Just from the marketing for the campaign, we've already seen that begin to pay us back in terms of brand awareness and demand. The crowd-sourced funding (CSF) campaign actually advertised our product as well as our investment offer.
Drawing on your own experience, what do you think are misconceptions about equity crowdfunding?
The main misconception is people's understanding of CSF. As soon as people hear crowdfunding, they think of Indiegogo and Kickstarter. You realise early on you need to clarify that immediately and say, “no, this is actually an ASIC regulated process and is strictly regulated.”
Because the concept is relatively new, it's not well known. But once you explain it, people get it quickly. We found it useful to explain it in the sense of allowing mum and dad investors to participate but with some protection around their investments (i.e. investing a maximum of $10,000).
Since running a successful campaign, I think CSF sits as a good gateway for new businesses and brands to raise capital without having to go down the listing path. I've already been contacted by a couple of business asking, “Hey, could we catch up for a coffee? I'd love to know how you did it. What's your thoughts? How would you do it differently?”
On that note, what learnings from your raise could you share with other founders?
The key takeaway here is don't underestimate the amount of effort and time a capital raise takes. I don’t think I appreciated how much of our time and resources we would need to devote to firstly getting raise ready and secondly running a successful campaign because raising from the crowd sounded simple. But as you work your way through the process you realise it's actually heavily regulated capital raising process, so it's understandable that CSF requires time and resources.
For example, particularly on my own personal social media, you're pushing the campaign all the time and you may question whether you want to but you've just got to do it, you have to be constantly on. I think people might perceive equity crowdfunding as an easy pathway but I don't think it is. It’s viable and valuable, but not easy. It can be time consuming, particularly from a compliance and a marketing perspective.
Based on your learnings, what are your top CSF tips for founders?
Try to stay away from the refresh button on the dash! Those little dopamine hits of real-time investment can be addictive. Jokes aside, trying not to get too caught up in the raise is a good tip.
Another is to push your third-party endorsements and connections. If you can get media or your close contacts to push the campaign, it does work. My wife pushed the campaign a lot and it got picked up and shared numerous times by her friends, and they all invested varying amounts. So that re-amplification of the messages is a sound strategy.
Timing is also another key one. Making sure your EOI period, private period and live period matches up with your marketing initiatives. In hindsight we may have played the EOI period too long. I think people can get easily confused, because they’re not in the weeds of the process, so make sure your messaging is clear and ensure your timing of moving into different phases is perfect to get the highest investor conversion possible. The audience just wants to click a button, give their support and be done. Make it that easy for them.
Another learning is consider when to push your momentum builders. As an example from our campaign, the radio. Given that we had 55%-60% of Tasmanians as shareholders at the close of the campaign, I wonder whether we should have been mindful of when to pull the trigger of media and leverage the momentum. We received all this media attention that we probably should have done when we were in the live period rather than in EOI because people would have heard it on the radio, seen it on their television or read it in the paper and said “yeah I’ll invest in that” but instead of investing they expressed their interest and then we had to try to hook them back in later. There's no wrong or right, but it needs to be thought through.
Lastly, really consider who your supporters are. Be cautious of who you invest your time into. In CSF it's likely you'll devote a portion of your time and energy to people who say they’re interested in investing but at the close of the campaign their investment hasn’t come through. If the people you’re in discussions with don’t invest after a few touch points, it’s likely they won’t so you should turn your focus and engage a different, new group of people. Don’t chase the unicorn!
How important do you think social media and a market marketing budget is for a successful campaign?
Critical. You definitely need social media and a solid marketing budget. The mindset should be, if I spent $1,000 a day and I get $20,000 in the door, it's absolutely worth it. It takes money to raise money.
Of course, run ads across Instagram and Facebook, but I also think LinkedIn is underutilised, particularly for our product. LinkedIn is expensive from an advertising point of view, but it seems quite effective. It depends on your product, but you absolutely need social media advertising.
I will say, as an insight from social media advertising, you've got to have a thick skin because some people don't read your content and make terrible comments, which can be upsetting. Especially if you’re a young founder who takes things personally. People come out of the weeds to make comments that are hurtful, but you’ve just got to have tough skin. Majority of the time the comments come from people who have no Facebook profiles!
You mentioned that you'd already started to see social media ads pay off in other ways. Is there an example that you would be happy to share?
For sure. Speaking generally, we’ve had a tonne of enquiries for our timber – people who have seen an ad for the CSF campaign, clicked on it to learn more, then got in touch requesting to put in a timber order.
Do you think equity crowdfunding is underutilised?
Yes, I think it is underutilised and I think we'll see an evolution of it over time. I think it's a steppingstone for those micro businesses and small caps, particularly with people who have got a good idea or a concept.
CSF is actually about backing businesses and joining them for the journey. You end up with touch points with a large group of shareholders which you don’t usually receive other than when listing. I think it shows a level of sophistication and is valuable for business success.