Update on the 24th of April 2017: We’ve finally achieved our goal and raised £100,000 for our first round of funding.
Back in October of last year, I wrote Part I of my take on Seedrs vs. Crowdcube. It was a short and sweet post promising more detail down the line. In part II, the goal is to share a little bit more of Chessable’s story and also try and help other UK entrepreneurs considering the same issue.
If you are an entrepreneur, you may ask what lessons can a failed campaign offer you? Plenty! While crowdfunding did not work out for us, our investment bid is not over yet, and we are in the last stages of raising an angel round privately. We are also one of the very few companies to have been listed both on Seedrs and Crowdcube (not an easy feat!). As a failed crowdfunding campaign, I can say that I wish I knew a lot of what I am about to write before the journey. I certainly Googled around for such a post; there was none to be found. Here it is.
First things first, do you really need crowdfunding?
We opted for crowdfunding for multiple reasons. First, we had many enquiries from our users about whether they could invest. This may sound like a no-brainer then, but be careful! If like us, you have a lot of international and U.S. users, you may find that getting U.S. individuals to participate is next to impossible. Confront the platforms on this issue straight away, as despite what members of their team may tell you, it may just be impossible. For instance, we couldn’t get a £10k accredited US investor on board, and we only found out when it was time to make the payment. Initially, we were told by the crowdfunding platforms we’d find a way to make it work, it didn’t. We wasted the investor’s time, and we wasted our time.
This might change as the field matures and certainly if we were able to let our US and international backers participate, crowdfunding may have been the way. As for us, we then hoped that our UK and European supporters would help us pull through, but we really did miss the rest of our user base. Moreover, considering we had trouble getting German and Swedish users on board, the situation is just as likely to get harder as Brexit looms over our heads.
Lesson: If you opt for crowdfunding and have a large user base outside the UK, be sure to check, double-check and triple-check exactly how your international users can get on board, if at all.
Another reason we choose crowdfunding was that despite the high fees charged by the platforms (nearing 10% when tallied up), it appeared to offer us a better deal. The market seemed to offer higher valuations. The crowdfunding companies promised introductions to exciting investors. The platforms said they would make everything easier than raising money privately. “How will you ever raise money from a crowd without us, they’ll say”!
In reality, I’ve found it so much easier to conduct our private investment. We did have to pay a solicitor upfront to draft up some documents and consult with us, but it has been easier than preparing for the crowdfunding platforms. In the UK, the crowdfunding platforms are FCA regulated; which protects people from “financial promotions”. This adds a lot of overhead and makes things harder and longer than they should be. The crowdfunding companies also work pretty slowly, drawing things out for a long time.
If you think you won’t find investor introductions without the platforms, think again! Our most promising investor leads, U.S. and U.K. based, were already part of our mailing list. Consider that perhaps there are other ways to get these same introductions.
Lesson: Hiring your own solicitor and dealing directly with a few angels, may be a more cost and time effective option to raise finance for your business. Crowdfunding takes more time and effort than it initially appears or promises.Our most promising investor leads, were already part of our mailing list.Click To Tweet
We also saw crowdfunding as an exercise in marketing and branding. Let’s make some noise, and more people will find out about us! We spent a considerable chunk of our bootstrapped revenue on this, but in the end, we think it was worth it. In particular, our London events worked out really well. We promoted them via our mailing list and more than a few people joined us. New chess book authors partnered with us. We got invited to present at chess events. I even got a chance to once again appear on the BBC! It was thanks to these efforts that we met some of our private investors who will soon be part of Chessable. There must be some magic to meeting prospective investors in person, rather than having your first interactions with them online. In the end, this became the most important reason of them all.
Lesson: The marketing and branding you can get out of crowdfunding can be very successful. However, do not underestimate its price and how much time and energy it will take. We’ve met companies that have spent £5k just on their crowdfunding video. As a young start-up, you may be surprised by how quickly all the fees add up.
Certainly, if in the future I am ever considering the issue of crowdfunding again, it would be a good idea to consider other financing options in a bit more detail. But if I were to crowdfund again (and due to the marketing and branding, I would!), why would I opt for Crowdcube instead of Seedrs? Here is why:
Key Takeaway #1: Crowdcube’s algorithm is transparent, Seedrs offers you a black box.
Let’s cut to the chase. The big one. To get investment you need introductions to investors. To get introductions to investors via the crowdfunding platforms there is only one way. You need to rank above-the-fold on the platform’s main investment opportunities page. Just like in Google search results, the top three results get all the clicks; the rest is left forgotten. The platforms may not admit it, but it’s not too hard to come to this conclusion yourself.
In one week with Crowdcube, we received ten times the number of introductions than we did via Seedrs. On Crowdcube every single investment gives you exposure at the top of their page. Being at the top of the page leads to further introductions and further investments. Social proof, it’s basic human psychology! In contrast, Seedrs maintains a secret sauce for their top rankings. Raise more money they said, and you’ll get there. The truth was, even a £5,000 investment was not enough for page one! What’s my motivation to get another £5k investor on board if it will lead to no introductions? On Crowdcube, a £10 investment is sufficient.
Lesson: Crowdcube offers a clear strategy for you to follow. Watch the Seedrs and Crowdcube homepage before making your choice. See if you understand their success metrics. What do you need to do to get above-the-fold exposure? Don’t take my word for it, and definitely don’t just assume a good investment opportunity will rise to the top by itself.
Key Takeaway #2: Crowdcube offers more guidance and support through the entire process.
Even if you think you don’t need it, it is good to know that it’s there. During my entire interaction with Seedrs, I heard a real person’s voice once. This was when I was chasing Seedrs down and had to call them to get a major issue fixed on launch day. In contrast, simply to get an application in with Crowdcube, I spent at least two hours on the phone with real people who showed an interest in what we do. Ivan, who would become our campaign manager, researched our business and asked critical and important questions that you rather answer before investors ask them! Mike, their marketing guy, helped us with some of our best marketing and branding ideas. It was awesome to have a real partner in our funding efforts.
Many other little things help Crowdcube have the edge over Seedrs. For instance, the actual interface and web platform used to create your campaign, their support documentation, investor rewards, and more. However, since Seedrs may very well evolve and improve I will leave you with the details only on the key takeaways. Certainly, if Seedrs became a more transparent platform, things would change. However, until they do, at the very least I hope I have encouraged you to scrutinise this choice with a bit more care before making such an important decision. Good luck!
David is Chessable’s CEO and Chief Scientist. He finished his dissertation on expertise and expert performance as part of a MSc in Psychology of Education (BPS) at the University of Bristol, and also holds a PGCert in Applied Psychology from the University of Liverpool. David’s chess rating is around 1,850 FIDE.