As a small business owner fundraising can be a daunting prospect but digital technology is changing this. You can now raise the funds you need to develop and expand your business in a way which you’ll find more user-friendly and which puts you in control of the process.
Let’s start by looking at the evolution of fundraising.
The genesis of fundraising – as we know it today – is often erroneously attributed to the founding of the Amsterdam Stock Exchange in the early 1600s. However, it’s been around a lot longer than that.
How raising funding has evolved
In 1902, archaeologists uncovered a series of stone tablets that laid down the first set of investment rules, decreed by the Babylonian king Hammurabi in 1700 BCE.
Traditional methods evolved over time – the 20th century saw the introduction of the first venture capital firms, family offices and investment networks – but essentially the landscape has remained largely unchanged due to one constant factor: the middleman.
The introduction of crowdfunding has certainly caused some disruption, though even this is by no means a new phenomenon.
Mozart – An early crowdfunder
A great early example is the tale of Mozart who lacked the funds to stage three new concertos in Vienna. He made an appeal for funds and through a ‘crowd’ of 176 investors, he was able to stage the performances – his crowd’s return on investment? A signed copy of the concerto music sheets.
Digital crowdfunding has increased the pool considerably, allowing customers, friends and family to become registered investors. However, fundamentally, the process is still largely controlled by the facilitator, not the scale-up itself.
Digital technology is – finally – solving this problem. It is now possible to own a bespoke platform, within an FCA regulated space, that grants the entrepreneur the power and freedom to fundraise all day, every day and – crucially – under their own terms.
Here are our top four reasons why digital is returning the reins and putting the scale-up firmly in control:
1. Always On, Always Open
With this technology, for the first time, companies will be open for funding throughout their entire growth cycle – from seed to maturity or exit, meaning the traditional round – lasting on average 30 to 60 days – will soon be merely a memory.
The advantages of being ‘always on’ are myriad. Canny scale-ups appreciate what it really takes to make a funding round truly effective: it takes time. This gives the business the greatest chance to find the right investor and the investor the best chance to do their due diligence and find the right deal – ultimately, the perfect ‘fit’ for everyone.
This ‘always on’ function also allows a business to exploit any unexpected successes: a prestigious contract, an unforeseen piece of news, a significant investor or new member of staff… anything that creates a buzz about your company that could attract new investors.
A good example involves Zap&Go, after a feature about their hyper-speed charging technology on BBC Click. This led to great publicity – they used their digital platform to exploit the good news, prolonged their funding round by six months and consequently raised an extra £500,000 in investment.
2. Investor Relations: An essential tool
If the fundraising is always on, the fundraising mindset also needs to stay on. If the focus is only on intense, time-limited rounds, the risk – and the much-repeated bugbear of experienced investors – is that they get forgotten and ignored once they’ve handed over their money.
To sustain the always on mindset, CMOs will need to be specialists in investor relations. This means that communities need to be built – it’s not just about how to sell as much as possible, it’s about creating a degree of support and loyalty in customers that makes them care.
Today’s customers are so much more than merely consumers – they want to feel part of the brand they love. The Brewdog ‘Equity for Punks’ strategy – which encourages their drinkers to invest in them to fully be part of their brand – demonstrates perfectly that investing is part of the natural progression towards ‘belonging’.
The traditional laissez faire attitude towards investor relations – thank you, here’s your share certificate, see you at the next round when I need more cash – is in its death throes.
With digital technology, we expect CMOs to use these emerging tools to keep their investors fully up-to-speed on all of their company news, whether it’s good or it’s bad.
Keeping shareholders informed and happy makes them a lot keener to dig deep when asking for the next cash injection – not forgetting that they’ll also a lot more likely to recommend the company to other investors.
3. Investors will be multi-national
A 2017 report, published by Beauhurst, stated that UK companies had received an unprecedented £6bn in overseas investment with 396 deals (throughout the course of the year) involving at least one foreign investor; trends suggest that this figure will continue to increase.
The UK is globally recognised as the leading hub for technology and certain countries – like China – are desperate to get a piece of us. In the future, we expect fundraising businesses – empowered by geography-agnostic digital platforms – to venture beyond their own borders when seeking finance.
This is beneficial to both businesses and investors, as it allows everybody to spread the potential risks in case of political – think a bad Brexit – or economic instability.
4. Looking beyond the primary market
Today, investing in a seed or Series A round is not only high-risk, it’s also lacking in the opportunities and flexibility provided by the secondary market.
Quite simply, investors must have enough capital to lock their cash into the company’s shares for whatever period of time it takes for the business to exit – normally a minimum of at least six years – before they see any dividend.
Although technically there are a few vendors starting to offer the secondary market today, it’s still very early days. It is, however, an idea that investors are interested in and we expect the secondary market – through a secure portal of reporting, accounting and the ability to communicate with their fellow investors to sell and buy their shares – will become standard practice.
2019 digital technology, with the communication channels, the flexible rounds, secure portals and a reinvigorated focus on community, heralds a new era of fundraising.
Whether you’re an entrepreneur, start-up or scale-up, an experienced investor or just happy to be part of the crowd, the whole process of seeking equity finance is about to get – quite simply – a lot better.
About the author
This guide has been written exclusively for ByteStart by Scott Haughton, COO of Envestors, a fintech company that connects investors and scale-up companies. With its fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year.
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