Observations from Climber Hotel, a B2B SaaS startup fundraising its first round ever through convertible equity.
Climber Hotel is a Portuguese startup that created an easy Revenue Management tool that helps independent hotels to maximize their revenues through optimal price optimization.
We have just had a successful crowdfunding campaign of £80.000 (~100.000€) using Seedrs platform and we’ve decided to share our experience and main learning points along the journey, to help fellow startups seeking for crowdfunding.
At Climber, we are strong believers that crowdfunding is here to stay and that it will enable more businesses to scale and innovation to flourish.
After balancing all the different investment options, we’ve decided not to accept direct equity for money investments during our first round. If you are still wondering if crowdfunding is the right thing for your business, here are a few things to consider that will ease your decision:
Equity Crowdfunding VS Direct equity-for-money investment
You offer the same conditions to all the investors. It’s difficult to offer the same conditions to all the offline investors. It took us two months of failed negotiations and useless meetings to decide on crowdfunding.
If you decide to fundraise offline you need to consider the cost of lawyers revising term-sheets. Overall, the price to pay for using crowdfunding platforms pays off.
Cleaner Cap Table
We have crowdfunded on Seedrs. Seedrs will represent all other investors in your cap table, this is great as it reduces the time-consuming burden of having to sign thousands of papers in the future. Besides, Seedrs understands startups better than any other investor does, and you want in your cap table investors that you are able to talk to.
Imagine having 30 investors calling you every week asking how the business is going. You have a business to build and you probably don’t have time to spend. Certainly, this depends on the number and type of investors (professional VS non-professional) you have, but most probably you will want to update them periodically in a given time (e.g. 4 in 4 weeks) that can easily be done by sending a monthly email.
40 Tips for before/during/after crowdfunding:
Identify which type of crowdfunding platform if better for your business – Equity based (Seedrs, Syndicate Room, etc) VS Reward-based (e.g KickStarter and IndieGogo)
Criteria to choose a platform: type of business (B2B, B2C, other), development stage of your startup, country of incorporation, number of previous fundraising rounds (we had none), support service, transparency, costs. There’s platforms that focus more at a later stage than others, due to their way of working (e.g. Syndicate Room crowdfunding platform – although we didn’t use this platform, we received good feedback about it) or that only work in some territories (Seedrs works for all European countries).
Ask questions to their teams. In the end you will have to work with them for at least 3 months, so it is important to have a good relation with them.
Ask to speak with previous startups that fundraised there, particularly startups in the same category that are incorporated in your country.
Ask for a checklist of steps that will happen and its timeline. This is crucial to save time by being able to prepare beforehand.
Ask: how will they help you promoting the campaign? With a newsletter? Front-page of their website? Is there any other way?
Link your website to your crowdfunding campaign so you can create more traffic and potential investors.
Video – creating a video just for the crowdfunding campaign is crucial. A generic video doesn’t work well. Tell a good story and remember, “People invest in people”.
Less is more – do not try to explain all details to an investor, especially if he keeps sending a great amount of questions, they are time consuming. Our experience shows that the more we explain, the less probably is that they will invest.
Business Plan (BP) – It is crucial to have one. Investors say they don’t like to read a 30-page BP. Believe us - It is a must to have one.
Updates – create regular updates on your campaign. Tell investors what’s going on during the time of the campaign. They want to see the company moving.
Traction – having traction on your numbers makes your life easier, but not much easier. You can’t just simply rely on that.
Front-page – try to be in the front-page of the crowdfunding platform every time. We were “fighting” to bring new small investors every day to maintain visibility to the crowd. There are very nice projects on second and third pages of Seedrs who simply don’t get noticed and aren’t able to reach 100% of their campaign.
Weekly newsletter – it’s crucial that you can make it to the list of featured startups on the weekly newsletters, either by being on the of biggest percentage (%) raised, bigger mover by amount fundraised or by the number of investors.
Start with 30% - Make your campaign public only after you are able to bring in 30% of the investment from the 3F’s (Family, Friends and “Fools”). That will help jumpstarting your campaign.
Find some money (investors) to come in at a later stage (e.g 50%->70% amount raised). Investors tend to invest where they see other investors putting their money. It’s the power of the crowd.
Ask current investors to increase their investment.
Create momentum – use thunderclap or similar tools to generate buzz on social media.
Answer Q&A’s quickly. Don’t let investors wait as they might just invest somewhere else.
Checklist - due diligence is a pain in ass time-consuming process. Ask for a checklist of all the steps you will have to go through until the end of the campaign, so you can prepare everything in advance.
Decide which option is better for you – equity crowdfunding VS convertible equity (later valuation).
Convertible Equity – benchmark Discount Percentages (%) and CAP limits, but also Longstop dates, trigger events, tag along clauses, share-values and other things you will need to define.
Promotion – try different things. We’ve tried PR, email marketing, public endorsements from current investors, etc. We didn’t try paid advertising (PPC).
Get informed on the commissions (%) charged by the platform. Seedrs charges 7% on money that comes from current Seedrs investors and 3,75% from investors brought by the startup using a referral code.
Ask your startup clients to become investors (we did it and worked).
Financial Conduct Authority – make sure you follow FDA regulation when promoting your business. Ask your account manager to clarify you on what you can and cannot say.
Say “No” – Do not change your business plan because one investor asked you to plan and expansion to Brasil instead of Russia. Again, it will be time consuming and might not be worth the effort. If he likes your business he will invest.
Organizing a roadshow or offline presentations in specific locations might help. People invest on people. Give investors an excuse to meet your team.
Continuously update your BP with FAQ from investors.
Allow your BP to be easily downloaded. A good place to have it is on your FAQ tab of the campaign. Investors look for 10-20 startups before investing in one, and they will probably invest in the one they relate to the most. Not having a BP at hand might be an excuse not to invest in your startup.
Fundraising will be almost a full-time job during 3 or 4 months. As people say “fundraising is dating” so you better start “dating” investors before the campaign has started.
Ask your account manager for regular analytics of your campaign and see what works better.
Know your market – you will need to have a proof of everything you declare when creating your campaign. It’s easier to create a campaign if you know the numbers and details about your business, product, market and competition.
Email Hunter – Email Hunter chrome app proved useful. 75% of the people will not respond but those who do are interested and are exactly the kind of investors you want on board.
Set a deadline for investors to give you an answer. It is better a “no” than a “maybe”.
You may hear “crowdfunding only works for hardware”. Crowdfunding is the democratization of the access to funding, and it works for any startup. Having a solid project and a good story telling is the key.
Use excel to create and manage your investors’ pipeline as if it was a sales channel. Creating labels and moving them along the pipeline will help you keep control of the situation. You can use tags like “unlikely”, “to follow up”, “BP sent”, “met 2x”.
Keep the motivation up – unfortunately, it is a common thing that investors say they will invest end up not doing it. Don’t feel trapped and get over that quickly. Simply ask them “how much will you invest?” and “do you have funds to invest right now?” to filtrate them. This last question is particularly relevant since there’s a large number of investors’ who are supported/reimbursed (at least in Portugal) by European money (P2020) but that are only available in certain periods of the year.
First offline investors in your country – we spent money on going to Nice and Madrid to speak with business angel clubs, and the conclusion is that for the stage we were at – pre-revenue – it’s useless. Foreign investors (living abroad) will difficultly invest outside their area of influence.
Be proactive – test, fail, try again but don’t wait to put your campaign out there hoping for investors to come. It doesn’t work that way.
Why did we chose Seedrs?
The team was friendly and always ready to help. Actually, they were helpful from the beginning until the end of the campaign. Also, there were previous SaaS B2B successfully fundraising there and the cost (commission %) was acceptable, which made us believe our campaign had good chances.
Three things to bear in mind:
Long due diligence
Usually the Seedrs team goes through all your campaign information – the so called due diligence process - and tries to make it as easier and as understandable as possible. From the submission to the approval of the campaign, it took us approximately 20 days. This means you have to be careful, because if you want the campaign to be live at the beginning of a certain month you should submit it in the beginning of the previous month.
To play safe, if you are planning to raise on Seedrs you should accept overfunding. As when an investment is done, it doesn’t necessarily immediately deposit on Seedrs bank account, so by the time the campaign has closed, Seedrs will not have received that investment.
Bring offline investors
It’s common on Seedrs that campaigns go live with already having 30% of funding. Also, plan to bring a bigger investor during the campaign. On week 7 we brought in a bigger investor. The campaign grew a lot in percentage, triggering a continuous and quick growth until it reached 100% in the space of a week.
- Out of 126 investors, 57 (45%) were private.
- The amount invested more frequently was £30 - the minimum required.
- We raised on average £6169 per week.
- We’ve achieved 100% of the total funding 20 days before the deadline.
- We had investors from 14 countries, 47% being from Portugal.
Hope these guidelines are useful to you. We wish someone had taught us all this when we first started. Certainly, it would have saved us a couple of weeks.
Our last advice is for you to strongly believe in your startup vision. If you do, others will follow.