Why You Should Turn Customers Into Your Shareholders

If you ask any entrepreneur what the most important part of their business is, there’s a good chance that they’ll choose their customers. The saying “the customer is always right” is a motto that has sustained millions of businesses and will continue to form the backbone of millions more. As the lifeblood of any business, customers can make or break an SME and it’s important to ensure that they’re onside when it comes to your business strategies.

The concept of equity crowdfunding is still a recent phenomenon, but it’s not just a way of raising funds and getting thousands of new investors; it can become an alternative form of marketing that’s highly dependent on customer loyalty. As existing fans and users, shareholders with a vested interest now act as ambassadors for your product or service which is an invaluable edge to have in today’s hyper-connected world of social media.

Put your money where your mouth is

A good example is UK coffee chain, Notes Coffee, which raised just under £1.2 million from over 800 individual investors, surpassing their initial target of £600,000. Remarkably, this was their second fundraising on an ECF platform, with the first round raising £900,000, after which they opened four new locations to reach a total of nine, and doubled their revenue to just under £5 million. Not bad for a coffee cart that started back in 2010!

What’s interesting is their chairman, James Horler, also participated in the most recent fundraising round, which definitely supports the notion of putting your money where your mouth is. It certainly lent credence to the second fundraising round, which likely led to more customers becoming confident to invest in the business. As with most things in life, the true barometer of confidence is backing up your words with viable action and customers will easily pick up on this. Although it’s hard to say that there wouldn’t have been investors if their chairman didn’t participate, there’s little doubt that his presence certainly gave the funding round more credibility which could sway potential investors on the fence.

Customers will want long-term success

Customer loyalty is an amazing trait to have in your investors, as they will not only sustain your business, but to take it to new heights as well by being leading advocates for you. On the flip side, they are also likely to be much more accepting of the challenges or tough periods that the company may go through as the loyalty cultivated means they will be more tolerant than a pure investor with only financial returns in mind.

In the same way, companies will no longer need to toe the line between shareholders and customers as both are one and the same. Shareholders with no connection to the business will only focus on maximising profits at any cost, which isn’t necessarily the optimal way to grow a business. With ECF, entrepreneurs no longer need to balance between what’s best for customers and shareholders, allowing them to pour their efforts into creating a business that continues to deliver value to consumers. This is arguably much more sustainable and allows a business to not just survive, but even thrive over the long term.

Instant feedback

Another strong point for customers is that they will be vocal with regards to honest feedback. This will be amplified if they are active shareholders as they will not only want your business to succeed, but also stick around for the long-term. Unlike pure investors that want monetary gains in the short-term, customers are likely to advocate business changes that are in the best interests of the company. The feedback is likely to be carefully considered instead of geared towards increasing profits, and there’s the added benefit of it coming back fast!

For example, let’s say loyal customers have invested in a small-medium pizza business via ECF, with the company looking to expand. They will want to be assured that the taste remains the same across all outlets and will definitely be vocal should this not be the case! Entrepreneurs can expect fast, honest feedback which allows them to focus quickly to solve problems instead of being distracted by grander ideas. This will likely not be the case if you have traditional investors that are only concerned with the bottom line, and may not even have stepped foot into the store!

It works for all kinds of businesses

The concept of turning your customers into shareholders should appeal to all business owners, no matter what type of industry they’re in. For example, let’s say a noodle house wants to raise funds via ECF to open additional outlets. The lack of pressure placed on them by several large shareholders means they can continue to price their food reasonably, maintaining both quality and customer loyalty. Instead of being pressured to raise prices to maximise profit margins for shareholders, the noodle house can continue to focus on securing new customers while pleasing existing ones as the price remains competitive. Not only does this reflect well on the business as they don’t appear to be just interested in profits, it continues to strengthen customer loyalty which bodes well for the long-term aspirations of the business.

This concept even extends to more digital businesses such as challenger banks. Take the example of UK digital bank Monzo, which has attracted 2 million customers since its launch in 2015. Through ECF they hit their fundraising target £20 million, with £18 million coming in just three hours from 36,000 retail investors who were also Monzo customers. Despite drawing some criticism for allowing customers to use overdrafts to buy shares, the ECF round now looks like a very smart investment with the challenger bank valued at over £2 billion today after securing an investment of £113 million from US startup accelerator Y Combinator. This is double the £1 billion it was worth during the 2018 funding round, and no doubt a huge gain on paper at least for the 36,000 customers/investors that put money into the ECF round!

As an entrepreneur, it’s important to put yourself into your customers’ shoes once in awhile to reflect. Think of your favourite spots to hang out or shop, and how you felt when it closed down. There can be a multitude of factors as to why businesses unfortunately shut down, but in many cases, these situations were entirely preventable. No one likes seeing their favourite businesses close shopp – the same goes for your customers / potential investors. These customers will be the same voices that aren’t just putting money into your enterprise, but will actively play their part to help it grow sustainably for long-term success!

If you’re interested to learn more about how ECF can help your business, contact us here and we’ll get back to you as soon as we can!


Why Your Company Should Leverage Alternative Financing to Grow

The issue of funding is one that is typically faced by all SMEs at all stages of operation. Be it cash flow for expanding, increasing inventory or streamlining operations, this is an issue all entrepreneurs have faced before. In most cases, SMEs tend to secure funding from the usual sources – angel investors, venture capitalists, bank loans and even personal resources. However, what can you do if none of these are options available?

In recent years, crowdfunding has emerged as one of the most popular forms of alternative funding for amazing ideas that require cash flow to be brought to light. Crowdfunding platforms such as Kickstarter and Indiegogo need no introduction, with a plethora of products and services given life thanks to funding from tens of thousands of individual investors. Some of the biggest crowdfunding campaigns across both platforms run into the hundreds of millions, with the Ethereum blockchain leading the way with a mind-boggling US$4.1 billion. This demonstrates just how much potential there is by opting for this method of fundraising.

The concept of equity crowdfunding (ECF) is merely an extension of the crowdfunding branch, except that it caters to SMEs with proven business models that are looking to expand product offering or services. Although it’s an unconventional method of raising funds, there are several benefits that come with looking for more capital via this method.

Less hassle

Firstly, there’s no need to go through banks which means less red tape and faster access to funds. There’s also no pre-determined KPIs or milestones that must be met within a certain timeframe as the only goal is to expand successfully in order to secure an IPO or an exit for yourself as well as the investors that have a piece of equity.

You also won’t have to scramble to meet unrealistic revenue targets or profit levels by a specific deadline, meaning you can invest the funds you receive for the sole purpose of expanding your already successful SME that you believe in instead of a soulless cash cow. What’s better than being given the opportunity to bring your vision to light without large targets looming overhead?

Longer runway for your company

Securing external funding through ECF is a matter of covering your own bases – there’s inherently less risk involved than using your own funds or capital. A big business decision that turns sour can have the potential to cripple any company if internal funds are used, but having external funds at your disposal can provide more runway to take risks that could potentially pay off handsomely for both the business and investors.

For example, say you want to secure a large amount of stock to satisfy demand. If for some reason the hype dies down, your SME is now left with a ton of stock and no way to get rid of it. External funding can help you recover by bankrolling a pivot or new strategy, whereas using your own funds for inventory would’ve potentially killed your company entirely!

You’re in control

Another aspect that appeals to founders is that with ECF, you’ll be spreading equity among many retail investors, which leaves you firmly in control of your company. There will be no single large shareholders that you must appease or justify business decisions, nor any untoward influence on crucial judgment calls.

In addition, by offering equity of your company on an ECF platform, you’ll get instant market validation as the number of retail investors funding your expansion can be a good indicator that business is going in the right direction. They’re the first ones to buy into your plans so if you’ve got it all laid out and investors flock to it, there’s a good chance customers will do the same!

Chance of securing more funds

There’s also a good chance that you might be able to raise more funds through ECF than if you went to an institutional investor. This is because it’s a small, hassle-free investment for retail investors which is appealing, and the risk is smaller because it’s spread among hundreds or even thousands of them. For VCs or angel investors, putting up a lump sum puts them at greater risk as they’re more exposed and they are taking the sole risk of losing the investment if the business fails to expand successfully.

If you’re interested to learn more about how ECF can help your business, contact us here and we’ll get back to you as soon as we can!


How Risky is ECF?

If you’re a young investor looking to start off your journey, it’s unlikely that fixed deposits or mutual funds will generate the same amount of excitement or interest compared to other forms of high-return investments. One of these is equity crowdfunding (ECF), a modern form of investing that can lead to a large return on investment down the road, but also comes with a large amount of risk. However, most individuals will put in small to medium sums of money which means they are more likely to be able to afford losses in the event that a company fails to deliver a return.

Companies Might Go Big or Go Home

Like any other form of investing such as playing the stock market, dabbling in commodities or purchasing property, ECF has its own set of risks. The companies raising funds through this model could go on to make a killing or simply fade into obscurity after a few years. No amount of research will be able to account for sudden market changes or demands, even if there is a very experienced team spearheading the company’s expansion.

The Challenge of Localisation

Similarly, if the company is expanding internationally, there’s the risk of not being able to localise the product or service to suit the market’s needs. You just have to look at the countless American companies that have tried to penetrate Asian markets like China and India, but failed because localisation wasn’t their strong point. Notable examples include Taco Bell and Groupon to name just two.

So How Viable is ECF?

However, there have been enough success stories in recent years that suggest ECF is a viable method of raising, especially in more mature markets. Two of the most well-known examples of ECF investors reaping the rewards are through ride-hailing app Uber and plant-based meat substitute firm Beyond Meat.

As part of a more developed ECF market in the United States, an equity crowdfunding platform by the name of OurCrowd held healthy positions in both companies. This led to investors getting sizeable returns on their money when both Uber and Beyond Meat had their initial public offerings (IPO) in the same week!

Shareholders in Beyond Meat would’ve been well-advised to hold their shares until today though – having listed at a price of $25 per share, it’s now hovering around the US$120 mark! For investors in Uber, it would’ve been best to cash out during the IPO itself, but retail investors in both are still in the green if they choose to cash out today. Although such wildly successful stories are rare, it does highlight the potential for retail investors to get in early on some truly revolutionary companies through equity crowdfunding.

The Numbers Don’t Lie

Another advanced ECF market to consider is the United Kingdom; according to Statista, the ECF market in the UK rose from just £28 million in 2013 to £333 million in 2017, with a total of 20 different ECF platforms serving this market alone!

This demonstrates huge and consistent growth and is indicative of the demand for such a progressive fundraising model among retail investors that want to put smaller sums towards riskier but more rewarding investments. Overall, the global ECF market accounts for US$2.5 billion annually, which may sound like a lot but is a drop in the ocean when you consider the amount of funds companies are raising through more conventional models like IPOs. 

If you’re considering investing some funds into a specific company via ECF, we hope this has given you a balanced view of the subject. Ultimately, it boils down to your risk appetite and how much you are willing to invest and potentially lose, for a chance to get a very large return on your investment depending on the success of your chosen company.

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Disclaimer: Our articles are not and should not be taken as financial advice. You should conduct your own research carefully and be fully aware of all implications prior to making any investments.