Crowdfunding for Small Business Growth: A Deep Dive with an Expert.

In the ever-evolving world of business finance, there are various avenues for raising capital, and crowdfunding has emerged as a game-changer.

I had the privilege of sitting down with our very own seasoned expert, Troy Trewin, in podcast episode 379 to discuss his experience in raising capital for small business through crowdfunding.

Troy has not only experienced success with crowdfunding but also provided valuable insights into how businesses can effectively leverage this method for growth.

Troy has an impressive track record in the realm of crowdfunding.

He has successfully raised capital for businesses like The New Zealand Whisky Collection ($700k NZD raised), and Old Youngs Distillery ($2.7m raised in 19 hours).

As a keen observer of the crowdfunding landscape, he maintains an extensive Investment Memorandum (IM) folder online, serving as a valuable resource for budding entrepreneurs who engage with Grow A Small Business online courses and community.

In this blog, we’re going to review Troy’s wealth of knowledge on crowdfunding, shedding light on the different aspects, from pre-sales to equity, and some notable crowdfunding success stories.

Furthermore, he provides a step-by-step guide for businesses looking to embark on their crowdfunding journey and highlights the advantages and disadvantages of this funding method.

So, let's dive into the world of crowdfunding with an expert who truly understands the nuances of this financing avenue.

To set the stage, Troy begins by explaining the core concept of crowdfunding.

He categorises crowdfunding into two main types: presales and equity.

Presales crowdfunding allows businesses to pre-sell their products or services to prospective customers.

This not only generates capital but also establishes a loyal customer base before the product even hits the market.

On the other hand, equity crowdfunding provides investors with ownership stakes in the company.

Troy mentions that the average investment in such campaigns ranges from $1,500 to $1,800.

Investors can potentially gain from capital appreciation if the business is sold at a higher valuation in the future, but they may also face losses if the valuation drops.

Troy highlights that crowdfunding can offer both voting and non-voting rights to investors, depending on the campaign's structure.

In Australia, platforms like Birchall, Equitise, and the newly launched Stride Equity facilitate equity crowdfunding.

The collaboration of venture capitalists in Stride Equity campaigns is an exciting development that Troy recently explored in this episode of our small business podcast.

In both presales and equity crowdfunding, businesses set a minimum and maximum fundraising target, along with the valuation they place on their company.

Crowdfunding platforms typically charge around 6% in fees, but this fee is applied only to the amount successfully raised, with some platforms also having minimal fixed costs.

The proof of crowdfunding's effectiveness lies in the numerous successful campaigns that have captured the imagination of investors and supporters alike.

Troy shares a few noteworthy examples:

For businesses aiming to tap into the power of crowdfunding, Troy provides a detailed roadmap to success:

Start by assessing whether crowdfunding aligns with your business goals.

Research other successful campaigns and engage with crowdfunding platforms to better understand the process.

Prepare all necessary documentation, including your campaign's website and content.

Troy compares this to creating a website, with a particular focus on compelling copy.

Consult with legal and accounting professionals to ensure that your campaign is legally sound, and your financials are accurate and transparent.

Develop an Investment Memorandum (IM), create a compelling website, and craft marketing materials that resonate with potential investors.

Your company's valuation is a critical decision that your Board of Directors must make.

It's important to recognise that neither the platform nor your advisors will determine this value.

Initiate the Expression of Interest (EOI) phase, during which potential investors can register their interest in investing.

Your platform will prioritise your campaign in this phase, offering early access to potential backers.

They will also recommend what minimum and maximum may work, for the given number of EOIs received.

After the EOI phase, open your campaign to the public.

Investors who missed the EOI can now participate, and it's crucial to ensure your campaign is properly registered with the crowdfunding platform.

Crowdfunding campaigns typically run for 21 days or less.

Shorter deadlines have proven more effective for generating interest and capital.

Once your campaign concludes, funds may take up to a month to reach your business.

The crowdfunding platform will carry out necessary checks and deduct their fee (usually 6%) before transferring the capital to your bank.

Crowdfunding is a powerful tool for businesses, but it's essential to be aware of its advantages and disadvantages.

Troy emphasises that small businesses should consider crowdfunding before they desperately need it.

Crowdfunding is most suitable for businesses that have a well-planned growth strategy, such as:

It's crucial to align the crowdfunding campaign with your growth strategy and ensure that the funds raised will genuinely add value to your business.

Crowdfunding should not be a means to pay down debt or distribute dividends to existing investors.

To conclude our enlightening conversation, Troy offers some valuable recommendations for small business owners:

Crowdfunding is a dynamic avenue for raising capital and driving business growth.

Troy's insights, built on his extensive experience and enthusiasm for crowdfunding, have shed light on the key elements of a successful campaign.

From meticulous research to careful preparation, choosing the right crowdfunding approach, and maintaining transparency, businesses can unlock new opportunities and gain momentum in their growth journey.

For small businesses looking to make their mark, crowdfunding is not merely a financial strategy - it's a chance to create a community of dedicated supporters who believe in their vision.

With the guidance and expertise of professionals like Troy, the path to crowdfunding success becomes clearer and more attainable.

So, consider crowdfunding not as a last resort but as a proactive strategy to supercharge your business growth and shape a brighter future.

If you’re a high growth business looking to join a community of like-minded people and access to resources to turbo-charge your growth, consider a growth chat with Troy and joining the waitlist for the Business Transformation Program.