Loading...
Answers
MenuIs fundable.com a successful tool to help raise an equity seed round for a pre-launch startup?
I recently heard their pitch and found it convincing. Researching online, however, I haven't been able to find any posts from entrepreneurs who have used the platform successfully. They have an upfront + monthly fee to help package and promote your startup to investors. Was wondering if it is worth it. Any experiences or opinions on the platform would be great insight and very helpful.
Answers
We have used Fundable.com successfully for two rounds of financing both oversubscribed. Here is what I can tell you.
Basic info:
Fundable.com's platform connects accredited investors to startups seeking investment capital. Startups have a public facing profile that includes general information about the companies product, team, press accolade, etc. If you are raising funds claiming SEC Reg D 506(b) the public profile has no information about your securities offering. If an interested investor wants to view more information about your startup and or your offering, he/she would request access to your full profile. The investor must self accredit on the Fundable site before they are allowed to view your non-public profile. The startup is notified and you have the opportunity to conduct some due diligence on the investor (LinkedIn) and elect to invite them into your deal. Your private page includes the offering (terms). All communication from this point is done outside of the platform, meaning you have the investors email address ( a good thing to have).
Fundable charges startups a flat monthly fee to post a profile on the site. In addition you can opt for additional services (help) with your campaign. For a flat fee, Fundable will assign resources to help build your profile, consult with you on your raise, and assist with PR or Marketing. This includes a blast to their investor base of over 40K if my memory serves me correctly. I am sure it is higher today.
Our experience:
For our first round on Fundable, we elected to use the premium service. Fundable did a great job in helping with our profile. We received 50+ views per day (quite often 100+) and on days we were included in their newsletter we received 200+ views. 10 - 20% of views requested access to our full profile. and 10-20% of those responded to my request for a call. Our close rate was very high.
Both of our rounds were oversubscribed in less than 4 months taking averaging $50K per investor. These are high quality investors that have not created additional work (outside of normal investor updates). Many of our investors regularly share news and information about our industry. Several have re-invested in subsequent rounds.
Disclaimer:
Our startup is in the consumer hardware space which I believe tends to attract high net worth individuals. Obviously results may vary, thus I cannot speak to how well a SaaS play would do crowdfunding in general. Fundable.com's premium services offering may have changed since our campaign. I am not affiliated with Fundable.com. In fact we have been successful on other crowdfunding sites as well.
In Closing:
I am a proponent of crowdfunding in general. It is disrupting angel investing, providing investors with greater deal flow and exposing startups to an exponentially larger audience, increasing their chances to get in front of investors who understand and appreciate that company's solution and opportunity. Most importantly it is moving capital and driving innovation! Keep in mind, securities laws have changed and continue to change due to the Jobs act of 2012. Before you offer any securities to local investors or choose to try crowdfunding, you should consult with an attorney, and take the time to learn and understand what regulations apply to your circumstances.
Unfortunately without much traction, Accredited investment based crowdfunding does not work well for most startups. However, hope is on the horizon. Just this morning (3/25/15), the Securities and Exchange Commission approved unaccredited investor based crowdfunding which will allow for anyone, regardless of income, to invest in a private company. So instead of having to meet the harsh demands of VC's, now anyone can invest in a startup once the final rules become effective in two months from now. Hope this helps and would be happy to chat further through clarity if this new development is of interest.
I've met the Fundable team in person, they're based in Columbus, Ohio. They're very determined to help entrepreneurs and I've seen a lot of success stories from startups raising funds on their site. Your best bet is to set up an account and give Fundable a call, they're very personable and I'd expect they'd be very honest about your startup's realistic viability in fundraising.
I will fundable alone is not enough. Clarity, the start-up that connects experts with advice seekers for one-on-one calls, today announced a $1.6 million seed investment round. The round includes a lot of notable investors, all of whom are Clarity users themselves, according to founder Dan Martell, including Baseline Ventures, Freestyle Capital, Mark Cuban, Boris Wertz from Version One Ventures, Real Ventures, 500 Start-ups and more. Characteristics of Successful Crowdfunding Campaigns that would be essential to raise seed investment round are as follows:
1. They tell a story that prompts action: One of the most powerful things about crowdfunding is its ability to tell your business’s story. So, make sure you’ve got a compelling story to tell—why you invented your product, where your team came from, how your ragtag start-up will one day change the world. Do not just ask for money. Make your backers feel moved to want to become a part of your story.
2. Their founders have perfected their pitch: Your customers and potential investors are fickle—there are dozens of things vying for their attention and they don’t have all day to read your company history, flip through your brochures, or click through your pitch deck. Smart founders who close the most successful campaigns know that, and they approach their crowdfunding pitch with that in mind. That means touching on the points that are meaningful to their specific audience and doing it in an easily digestible format like short videos, infographics about market size, or a list of key facts about the industry. Above all, they keep it simple you want to make it as easy as possible for your target investor to connect with your story.
3. Their founders are active on social media: One of the most powerful things about crowdfunding is its ability to tap into the social web and spread faster and wider than would be possible through traditional methods like personally reaching out to investors or embarking on a road show. This rapid spread is possible because of tools like Facebook and Twitter, so it is a given that your business needs to be active on those networks and, ideally, have an engaged following well before launching your campaign.
4. Their founders already have large, supportive personal networks: The greater and more engaged a business’s personal network is before starting a fundraising round, the more likely it is to meet or exceed its crowdfunding goal. Fundraising success begins with tapping into this established fan base—getting friends, family, and existing customers informed and excited about your crowdfunding campaign before it actually launches. We recommend what is called a soft launch at least a month before kicking off your campaign, use social media, email marketing, and old-fashioned word-of-mouth to spread the word to this base without asking for money. Doing this will help get the word out and make these people more likely to back you later, lending your campaign some crucial early momentum.
5. They offer compelling rewards: It may seem obvious if you are considering a rewards-based crowdfunding campaign, but it is worth thinking long and hard about. Most backers are not going to decide to support your business simply out of altruism or goodwill. While a few supporters may pledge money solely to see your business succeed, most are going to be swayed by what they get out of it. Rewards come in all shapes and sizes but are most often a pre-order or discounted first-run purchase of the product you are raising money to create. Think carefully about your rewards tiers, always offer something at $20 or below, and be sure to encourage a larger pledge by bundling each higher tier with all the rewards that come before it.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Related Questions
-
Looking for guidance for where I can find investors for my app?
As Ken suggested, there is a wide breadth of mobile offerings and although there are some great "mobile only" funds, each investor / fund has their own thesis that makes them interested in some but disinterested in others. Also, if your revenue generating, you should seriously consider bootstrapping further. Revenue is treated very strangely in early-stage investing and *might* work against you. AngelList is a great way to research investors but not effective in actually connecting with them. Find investors who you are confident will be passionate about what you're doing based on prior job experience or what you know they are investing in. Happy to talk in a call to help explain this further if you need more clarity.
-
What happens to a convertible note if the company fails?
Convertible notes are by no means "earned." They are often easier to raise for early-stage companies who don't want to or can't raise an equity round. Equity rounds almost always require a simultaneous close of either the whole round or a defined "first close" representing a significant share of the raised amount. Where there are many participants in the round comprised mostly of small seed funds and/or angel investors, shepherding everyone to a closing date can be very difficult. If a company raises money on a note and the company fails, the investors are creditors, getting money back prior to any shareholder and any creditor that doesn't have security or statutory preference. In almost every case, convertible note holders in these situations would be lucky to get pennies back on the dollar. It would be highly unusual of / unheard of for a convertible note to come with personal guarantees. Happy to talk to you about the particulars of your situation and explain more to you based on what you're wanting to know.
-
When raising money how much of equity do you give up to keep control? Is it more important to control the board or majority of shares?
It entirely depends on the kind of business you have. If you have a tech startup for example, there are pretty reliable assumptions about each round of funding. And a business plan and financial forecasts are almost totally irrelevant to sophisticated tech investors in the early stages of a company's life. Recent financial history is important if the company is already generating revenue and in that case, a twelve-month projection is also meaningful, but pre-revenue, financial forecasts in tech startups mean nothing. You shouldn't give up more than 10-15% for your first $100,000 and from that point forward, you should budget between 10-20% dilution per each round of subsequent dilution. In a tech startup, you should be more nervous about dilution than control. The reality of it is that until at least a meaningful amount of traction is reached, no one is likely to care about taking control of the venture. If the founding team screws-up, it's likely that there will be very little energy from anyone else in trying to take-over and fix those problems. Kevin is correct in that the board is elected by shareholders but, a board exerts a lot of influence on a company as time goes-on. So board seats shouldn't be given lightly. A single bad or ineffective board member can wreak havoc on a company, especially in the early stages of a company's life. In companies outside of tech, you're likely going to be dealing with valuations that are far lower, thus likely to be impacted with greater dilution and also potentially far more restrictive and onerous investment terms. If your company is a tech company, I'm happy to talk to you about the financing process. I am a startup entrepreneur who has recently raised angel and VC capital and was also formerly a VC as part of a $500,000,000 investment fund investing in every stage of tech and education companies.
-
What is the average cost to close a round of seed funding?
I'm reluctant to say "it depends," but legal expense for a true seed round varies dramatically based on: 1. Whether the investment is structured as a priced equity round vs. convertible debt (or variations on that theme such as "SAFE") 2. Number and location of investors, timing of closing(s), and prior angel investing experience 3. Company counsel's efficiency and fluency in industry norms 4. "Deferred maintenance" necessary in areas like corporate formation, founders' equity issuance and IP assignments. #4 is the item that takes many entrepreneurs by surprise. On the investor side, it leads otherwise very savvy observers to give unrealistically low estimates of legal expense because they assume starting from a clean slate. This item is also most resistant to automation or standardization because startups come into being many different ways; each story is unique. I would put the lowest estimate at around $3K, assuming the company is already formed as a Delaware corporation with clean, basic documents, has issued founders' stock and handled related IP and other matters, and simply needs to issue a convertible note to one or two accredited investors with minimal negotiation of documents. The highest I would expect for a true "seed round" is about $15K, where some corporate cleanup is needed, the deal is structured as a streamlined kind of preferred equity (e.g., Series Seed), there are multiple closings with investors on different dates and terms, etc. Beyond that point we're really in "Series A" territory, doing things like creating a full set of VC preferred stock investment documents (about 100 pages), negotiating with investors' counsel (at the company's expense), and so forth. The expense and complexity of a traditional Series A deal have been the main impetus behind using convertible debt or Series Seed-type documents for seed-stage investments of less than $1 million or so in recent years. I hope this proves helpful. Always happy to chat and answer further questions.
-
What roles should the CEO and CTO have in a VC meeting?
The more important first impressions to leave a VC with are: 1) That you both are credible and inspire confidence that you can execute the plan you're fundraising on. 2) That there is good chemistry and a great relationship between the two of you; 3) That you can adequately address the concerns/objections/questions the VC raises. The CEO is expected to do most of the talking because the CEO should be the best person in the company at articulating the vision and value of the product and company you're building. If your CTO is comfortable presenting part of the pitch, it would be ideal for the CTO to speak to the product slides. The most important thing is for the CTO not to be a "bump on the log" meaning that you don't want them sitting there for most of the presentation with nothing to say. If you feel that's the case, you really shouldn't bring your CTO. Most VC meetings will not get technical and under the hood. Each question answered should be answered by the person best qualified to speak to that question. You should make eye-contact with your partner and use subtle body language to find a way to cue the other person to speak to that question or simply offer "CTO, would you like to answer that?" Bottom line, make sure that the CTO can speak confidently enough about the product and vision, otherwise -unless specifically asked by the VC - come alone. Fundraising is a big distraction to building and a good VC will always respect that in a first meeting, the CTO can be excused from attending in priority of building product. Happy to talk to you both on a call about helping get you feeling a bit more confident and prepared before your meeting. I was formerly a VC associate for a $500m fund and have raised money from VCs as a serial entrepreneur.