25 Mar 2019 | 09.01 am
Need To Know: Equity Crowdfunding
Irish software company Exceedence tapped Crowdcube for £247,000
25 Mar 2019 | 09.01 am
Software company Exceedence used equity crowdfunding to raise funds last year. Sector expert Nathan Rose explains that the process is far from plain sailing
Equity crowdfunding has something in common with the crowdfunding that most people are more-familiar with from well-known sites like Kickstarter. But there is an important twist – instead of receiving a pre-ordered gadget, equity crowdfunding offers shares of ownership in the company raising the funds.
It means those backing the campaign can become partial owners of exciting technology startups, as well as main street businesses who can now deepen the relationship between company and customer.
Offering equity instead of a product also means that equity crowdfunding is open to a lot more companies – Kickstarter only really works with products that can be easily shipped around the world, and which cost less than a few-hundred euro to produce.
This is why Kickstarter is best-known for funding gizmos, creative projects and board games. A company which makes expensive specialist medical devices would be impossible to fund on Kickstarter. With equity crowdfunding, the doors are wide open to companies like these.
The fact that equity is on offer also has important implications for the marketing messaging. Equity crowdfunding marketing needs to be much more honed to explain the case for backing the business model – not so much about the features of the product itself, as would be the case with Kickstarter-style crowdfunding.
Irish startups and growing companies will be naturally interested by this new funding alternative, especially if they would prefer not to get funded from banks or venture capital for whatever reason.
Choosing an equity crowdfunding platform is the first and most important decision that a would-be crowdfunder needs to make. Spark Crowdfunding touts itself as Ireland’s first equity crowdfunding platform. Based in Dublin, it hosted the online fashion boutique Serenity & Grace, which raised €56,100.
As reported by Biz Plus, investors got the added perk of receiving a lifetime discount on all online purchases. Spark Crowdfunding has since gone on to host four other successful crowdfunding offers, and one failed offer. Equity crowdfunding is not a guaranteed way to raise money, and all platforms have some failed offers.
One of the UK’s major equity crowdfunding players – Crowdcube – has also established a presence in Ireland. Crowdcube claims to be the world’s oldest portal for equity crowdfunding, with hundreds of millions of pounds invested across more than 800 successful raises.
The Crowdcube audience is far larger than Spark Crowdfunding, but it is important to realise that an investment in an Irish company does not offer a UK investor the same tax advantages as when a UK investor invests in a UK company. Therefore many members of Crowdcube’s huge audience may not necessarily view Irish companies with the same degree of favour.
Case Study: Exceedence
Exceedence is an Irish B2B software company which used Crowdcube to raise £247,420 from 354 investors in September 2018. They make and sell programs to help businesses fast-track, plan, analyse and de-risk their investments in renewable energy projects.
The purpose for the fundraising was to invest in business development, sales, marketing and product support, and in particular the launch of their cloud-based platform.
“We were talking with angels and venture capital but didn’t quite fit with anybody,” says CEO Dr. Raymond Alcorn. This is a familiar problem for many startups and growing companies – venture capital can have very strict criteria, which makes it hard for difficult-to-classify companies like Exceedence. The ability to fill this funding gap is one of the chief reasons why equity crowdfunding has fired the imagination of entrepreneurs.
Doing an equity crowdfunding offer is far from plain sailing, and Dr. Alcorn is quick to point out that it’s a lot of work too. It’s an exercise in marketing promotion – drawing attention to your company. Therefore, if the offer fails, it is a very public failure.
But Dr. Alcorn says that the rewards have been more than worth it, especially when it came to globalizing the company’s shareholder base. “Now we have evangelists in 36 different countries, and it’s been fantastic,” he says.
Equity crowdfunding is still in its infancy in Ireland, but the development of strong markets in America (through platforms such as WeFunder) and the UK shows what is possible when platforms, companies, and the crowd come together to share in the democratisation of finance.
• Nathan Rose (pictured) is the author of Equity Crowdfunding: The Complete Guide For Startups & Growing Companies. He runs the website www.startupfundingsecrets.io as a way of helping startups from all over the world use equity crowdfunding to gain marketing exposure and raise money at the same time.