So, you've decided to raise equity capital!
This is an exciting but daunting experience for many founders and leadership teams.
In this article, we partnered with Isaac from Onmarket, to run you through how to be investor ready step by step, so you know exactly what is involved.

‍

1. Equity crowdfunding platform

In Australia, you need to engage a licenced equity crowdfunding platform to complete your raise. There is a handful of platforms in Australia, including OnMarket.
Here is how to choose which platform to use:

• Support – How much support will the platform give you throughout the process? Ask the platform if they will be doing a weekly meeting, who your point of contact will be, and ask for examples of how they have helped clients at inflection points throughout campaigns they have run in the past. A trick to knowing how supportive they will be is how quick they are to organise a meeting with you, and how quicky they send follow-up material. This will usually be indicative of how your engagement will be with them.
• Fees – Both success fees and up front fees. This can be found on a platform’s website or by meeting with the firm to discuss.  
• Reach – How engaged is their investor database? Have a look at how large the average raise size is on their platform and ask for what percentage of investors come from the platforms database compared to external sources.

‍

2. Key compliance tasks

• General purpose financial statements – under the equity crowdfunding regulations, you must have financials prepared that meet the Australian Accounting Standards.
• You must have two or three directors – you may need to appoint another director. These directors also need to be based in Australia. You need two directors for a private unlisted company, and three for a public unlisted company.
• Share split – you may need to give ASIC notice of a share split. This makes the investment amount and number of shares being issued to new investors neater.
• Constitution – you need a specialist equity crowdfunding constitution. There are lawyers that are low cost that know the ins and outs of how to protect your business.
• Background checks – all of your senior managers and directors must have a background check done.
• Share registry – you must choose a share registry.

‍

3. Valuation

The valuation component of capital raising is one of the most contentious points a founder faces. Founders must balance two elements - investor appetite and dilution.

• Dilution is how much equity the founder and other existing investors will be left with after the raise.
• Investor appetite is at what valuation an investor is willing to come in at. This can be seen by looking at what similar companies in your sector that are your size are trading for. Ensure you look at the most recent transactions, as timing can completely change investor appetite. This can be found by looking at venture capital and private equity news. Have a look for valuation, revenue multiple, EBITDA multiple, and other valuation metrics.
  ‍

4. Offer Document

An offer document is a pitch deck that covers off on what your business does, and why investors should invest. Equity crowdfunding is targeted at retail investors so the equity crowdfunding regulations set out what must be included in an offer document.

This document can be prepared by your team, an external firm, or the platform. Generally, at a minimum it will need to be graphically enhanced by an external party unless you have in house capabilities.

Investor rewards – within an offer document you will outline your investor rewards. These are experiences, discounts or products you provide to investors to entice them to invest. This has shown to be an extremely lucrative way of getting investors across the line. You can work with your platform and marketing agency to set appealing investor rewards.

You will also need to get consent from everyone mentioned / quoted in the offer document.

‍

5. Investor video

This is where investors will follow your story and make their initial decision about if they want to invest. A high-quality and effective investor video is crucial for a successful equity crowdfunding campaign. This is the most important investment you will make in ensuring that you have a successful raise.

See previous investor videos from OnMarket here.

‍

6. Lock in cornerstone investors

An equity crowdfunding raise is based on momentum. You should reach out to large investors who have invested in your sector in the past as soon as possible so they can begin doing due diligence ahead of the raise. Having a large investor back the raise can make all the difference.

‍

7. The campaign

Generally, 70-80% of investors will come from your database or marketing; with the balance coming from the platform database. Having a specialist equity crowdfunding marketing agency like Social Start-up Labs is of the utmost importance. In the deals I have seen all the most successful companies engage a firm that specialises in equity crowdfunding. A marketing firm will do email marketing to your database and will run advertising.

You should also consider engaging a public relations firm or consultant. Media coverage of your raise can be repurposed to market the raise which has shown to be incredibly effective. Agencies come at a cost; however, the investment has been shown effective in past OnMarket clients.

‍

8. Landing page

This is where investors will go to decide if they will invest. The key messaging and imagery are what will convert your investment lead into a potential EOI and/or investor.  This will be a mix between your investor video and offer document.

‍

That is it!

There are a lot of elements that need to come together to make for an effective equity crowdfunding campaign. It requires external partners, investment, and time to make it all happen. However, the benefits of having growth capital, new brand ambassadors, a founder favourable constitution, and a predictable funding timeline makes it all worth it.

My name is Issac, I work with growth companies at OnMarket to ensure they have a successful raise. OnMarket is a leading investment platform. We've done 281 raises raising over $200m for our clients. To find out more, you can get in contact at issac@onmarket.com.au.