To unfamiliar eyes, it might look like companies simply post their pitch on platforms like Seedrs and Crowdcube, and gain investment. But there are many preceding steps that determine whether a company can even get listed.
When investors browse any reputable platform, they know that giving their financial backing to any company comes with a risk – but they take comfort in the fact that platforms apply their own due diligence process to every prospective campaign.
Such platforms look very carefully at every claim the company makes – and we mean every claim – to make sure it is accurate, evidenced, and isn’t misleading.
Often unaware of the challenge ahead, many companies fail due diligence and end up significantly delaying their campaign. Rather than trying to mislead the platform, failure is often due to being unable to evidence claims.
Here are a few tips on how to give your company the best chance of getting past the crucial due diligence stage.
Evidence your team’s credentials
As investors pay close attention to your team’s credentials, team bios are an essential part of any equity crowdfunding pitch. But the claims made in team bios often delay the due diligence process more than any other section of the pitch.
This is because you have to evidence every claim you make – including your team’s career history. If any of the bios cite “20 years’ experience in marketing”, for example, be expected to be asked for evidence going back 20 years to demonstrate this, including tax returns and payslips.
Instead, pull out actual examples of companies your team members have worked for, or concrete, provable achievements they made during their tenure. Again, these will have to be evidenced – you can't use LinkedIn or a CV!
So, a green technology company claiming that they used to work for the Environment Agency or the National Grid, for example, may need to show a contract or an email from the employer stating that they worked there, how long for, and what role they played.
Likewise, an entrepreneur claiming they founded a company and sold it for £5m will have to provide the documentation to prove the date they founded it and the sale price.
Former employers tend to take ages to get back and, as the platform will definitely ask you for their reference, it’s really worth chasing them up before you've even submitted your pitch page.
And always make sure you avoid vague statements or exaggerations, instead opting for clear, verifiable facts.
Check your numbers, know your market
It won’t surprise you that investors will want to see some numbers to give them an idea of how your company is performing, a picture of the overall market, and how you can further tap into it.
Did you make 10,000 sales last month, or achieve a 300% sales growth in just one year? Great! But if you’re making claims like this, you’ll need to provide a complete sales list and show your working.
As such, it’s important to keep your numbers in order. Even if your company is not yet profitable, you’ll need to prove there’s interest in your product or service amongst your market. Finding reputable stats which show that X% of consumers complain about a problem you have a solution to can prove very useful.
It’s also worth locating original source industry figures which show how big your market is, including the current and projected future trends.
Videos are not exempt from fact-checking
In a pitch video, plenty of claims can be made in a short time, making it a challenge to get it past due diligence.
Make your video before you’ve gotten approval from the platform, and you’ll have to cut any claims you can’t prove, or indeed reshoot the entire video, wasting time and money.
It’s always safest to write the script, show it to the platform, and ensure they have no qualms with what you’ll be communicating to investors – this goes for any graphics you show in the video, too.
If you follow this advice, start as early as possible, and are clear and transparent, you shouldn’t have much trouble getting past due diligence. What’s more, if you have all the evidence to hand, the due diligence team at your chosen equity crowdfunding platform will absolutely love you.
It’ll also act as the perfect training – once your campaign is live, you’ll be vetted all over again by many inquisitive investors!
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