Does Equity Crowdfunding work for SaaS?
Equity crowdfunding platforms are really taking off globally, and a common question I hear from SaaS companies is "Does it actually work for SaaS?" In my opinion that is completely the wrong question to be asking. The right question should be "Would my particular business benefit from equity crowdfunding?'
Let's be honest, if you have struggled to get funding elsewhere, turning to equity crowdfunding as a potential solution is never going to end well. When it comes to equity crowdfunding SaaS businesses need to be asking themselves the same questions as everyone else:
1. Am I B2B or B2C?
Let’s be frank here, when compared to B2C, there are very few B2B equity crowd-funded success stories and there’s a reason for that.
The path to purchase for a B2B company almost always involves multiple stakeholders, and when a business is buying a product (or service) they need to trust the source. A poor purchase decision reflects badly on the person who made the call, and most employees are too aware of this risk to take on something that’s still being funded.
Whereas if you’re in B2B, you’re in luck. People are much more willing to take a risk with their personal funds, and are often excited to be the one to discover some new product to show off to their peers.
2. Is my target market broad enough for Equity Crowdfunding?
There have been successful equity campaigns for hyper-niche products in the past, but it is still the minority when compared to products that offer a broader market play. Let's look at some Kickstarter products to get an idea:
A product that allows you to grow worms as food. Whilst an innovative product it has a much smaller target market (people interested in alternate food sources) and therefore only obtained 830 backers to bring in $145,429 of their target $100,000.
A product that offers a non-invasive snoring solution. Whilst also an innovative product it has a much broader target market (people frustrated by snoring) and therefore obtained 3,426 backers to bring in $832,523 of their target $100,000.
These two products are a great example of how important a the market size and appetite is when undertaking a crowdfunding campaign (regardless of cash or equity). The more that the person investing can relate to the product you are offering, the more likely they are to invest. The more of them there are, the more funding you are likely to achieve. Simple.
3. What are my goals from crowdfunding?
If you're just thinking of a dollar value here, you're missing the key benefits of crowdfunding.
Crowdfunding campaigns are just as much hard work as legging it around your investment community, that hard work just occurs in different areas. If undertaken well this work can continue to pay dividends over the long term. Some examples of key benefits are:
PR - this is the 'big kahuna' of benefits, the really successful crowd-sourced products have leveraged their campaigns to get on local news shows, a brilliant example of this was the Invivo campaign (through the Snowball Effect platform) where the founders (based in NZ) managed to get their wine on an episode of the top rated Graham Norton show in the UK.
Brand Awareness - equity crowdfunding is a great opportunity to drive up brand awareness as both the crowdfunding platform and any potential investors will be talking about you in market. Don't just take what comes, leverage this increase in awareness with targeted and well planned marketing campaigns throughout the crowdfunding campaign period to obtain maximum reach.
Efficiency - one little realised benefit is that the crowdfunding platform will usually take care of all of the compliance obligations, payments, signing of legal documents and the issuing of shares for you. This greatly reduces the administrative component of a fundraising round, allowing you to focus more on networking with investors, creating PR opportunities and driving brand awareness.
Standardisation - another little realised benefit is the standardisation of your offer. When it comes to investors in the SaaS market everyone has different requirements for due diligence, and often want to negotiate on the terms offered. Using an equity crowdfunding platform means that the due diligence information and the terms are set across the board, well prepared in advance, and neatly packaged to be attractive to potential investors.
4. Do I have the time and resources to prepare properly?
Great preparation is critical when it comes to successful crowdfunding. As your offer is going to be in the public eye is needs to be completely solid, slick and appealing.
Depending on the crowdfunding platform you choose, you often need to undergo a thorough application process to be accepted onto the platform. Once accepted you need to go through preparing all of the due diligence and offer documents, in addition to planning your PR and marketing campaigns throughout the period, as well as allowing enough time for all of your investor meetings.
Like any funding round, it will take up all of your time throughout the campaign period and needs to be your number 1 priority. If you are not in a position to give 200% throughout the campaign period you should seriously consider delaying the round until you can be. A crowdfunding campaign that fails to meet its target can give you backlash in the investment community, you need to stack your deck as much as possible to ensure the campaign succeeds.
4. Can I back this up with private investment?
As just mentioned, you need to stack the deck in your favour. One solid way to do this is to ensure you have lined up private investment prior to your crowdfunding campaign launch.
For 'private investment' you should be talking to both your current investors, and new potential investors in your investment community. I'm afraid running an equity crowdfunding campaign doesn't mean you can drop going to endless investor meetings. Equity crowdfunding is simply the platform you have chosen to use to deliver your offer, the main portion of any funds you raise will still be coming from the investment community - therefore the more networking you can do in the community, the more interest you will generate for investment.
Lot's of food for thought.