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Need to raise capital? How your start-up can use crowdfunding to get off the ground

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Raising start-up and early stage business funding can be challenging in today’s economic climate. But if you put your plans in front of the right crowd, anything is possible.

It is currently very difficult for businesses to raise money for sub-$5 million investments in Australia, but often the first $500,000 of seed capital is critical to the chances of the business ever getting off the ground.

The biggest mistake you can make when pitching your company to a crowdfunding platform is to over-value your company. A good business idea is a powerful thing but without funding it will likely come to nothing. So don’t make the mistake of assuming the idea is worth more than the funding that will make it a reality.

An organisation such as The Australian Small Scale Offerings Board (ASSOB) makes such a fundraising effort far simpler for businesses with the right mix of credentials and growth prospects.

Then, once the original investment has been made, crowdfunding actually becomes easier as investors are comforted and encouraged by the fact that others have already put money on the table.

Skin in the game

While such investment is a very positive sign for those looking at a business, so is the fact that the founders, and their friends and family, have also put their own money in.

There is a trend of advisors and board members having skin in the game because they genuinely believe in the company’s chances of success.

Some cynics say it’s simply a way to buy a board seat, but actually the endorsement can be very important and can have enormously positive effects. Obviously the experience of the investor is of fantastic value to the entrepreneur.

The investment and the advisory role or board seat should always be two completely separate discussions, but they are both discussions worth having. A business such as ASSOB makes this entire process very transparent and offers a platform for investment in a very professional manner.

Essential ingredients for success

The story of the business, the reason it came about, the problem it solves and the service offering, must be completely compelling and credible. The story of the business must clearly describe why it is of benefit to society.

Following on from the story of the business, the team behind the brand must also be worthy of investment. The best idea in the world could be totally wasted on a group of people who have no talent for what it is they claim to be doing. Investors will see through such inexperience in no time at all.

What’s the process?

ASSOB’s platform puts private, unlisted and pre-IPO businesses in front of potential funders for capital amounts between $250,000 and $5 million. The investors can be anyone from friends, family and staff to sophisticated private investors in Australia or overseas.

The entire process is transparent from the very beginning, including facilities such as cooling-off periods, minimum subscription amounts and professionally prepared investment documents.

Companies seeking funding must show they have a viable business, demonstrate growth prospects and require a realistic valuation that can withstand scrutiny. ASSOB specialists will then put the business through a due diligence process before deciding whether to welcome them on to the platform. The company’s directors are researched for integrity, capability and character and the business’ presence in the marketplace is also considered.

So it’s not a set-and-forget type of process, but no important business process ever is. Instead it’s a system that ensures an organisation is looking as good and running as well as it possibly can. Such a process is a valuable one for any organisation as it forces the directors to develop a clear understanding of their strengths and weaknesses before seeking vital funding.

Remember that it’s only the first piece of funding that is difficult. After that it becomes easier. But the benefits of the funding are far greater than just cash. The knowledge offered by the investors, their networks and the public endorsement of a business offered by an investment are all very powerful.

Kylie Hammond, CEO of Director Institute, is a leading board and executive search and board talent management consultant and Australia’s foremost CEO business mentor. She is passionate about helping executives create portfolio careers which can include a main employment contract, combined with not-for-profit work, board appointments, speaking and coaching or mentoring engagements.

Kylie Hammond Cropped

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