Individuals, businesses, and institutions can indicate their intention to start a campaign on TokePortal.com, but only a legal person capable of issuing tradable securities in an EU member state can launch an investment campaign This might mean that the Campaign Owner is required to establish an SPV company.
In investment-based crowdfunding, both B2C and B2B businesses have a chance. It’s often believed that only B2C providers can do crowdfunding – this is only really true for reward-based crowdfunding. As capital can be raised multiple times from angel investors or venture capital investors, crowdfunding can be done multiple times, so a business can have multiple crowd rounds, typically with a 1-2 year interval, raising increasingly larger sums at increasingly higher company valuations. It is also an increasingly common phenomenon that businesses raise capital solely through crowdfunding, such as starting a product-based campaign during the pre-market entry phase (pilot or MVP, i.e., pre-mass production phase), followed by an equity-based campaign in the seed phase, and later raising debt-based financing up to the point of going public.
There are no particularly high risks in initiating a crowdfunding campaign if it is done in good faith and in an agile and transparent manner; however, a failed campaign can naturally lead to disappointment. If the Campaign Owner prepares according to the advice here, “it can only be messed up”. The success rate of equity-based campaigns, based on the best international practices is over 70%. Especially with its pioneering role in Hungary, TokePortal places great emphasis on preparation, as well as on education and knowledge dissemination, so cooperating Campaign Owners can count on success. Just as investors can withdraw their investment intent until the end of the Campaign, the Campaign Owner is also entitled to reject investments from certain investors if bad faith is suspected. However, since the investor’s rights are determined by the Campaign Owner, including information rights, a single investor cannot cause significant damage to the business. Few investors tend to be troublesome or impatient: in TokePortal’s history, there has only been one case of a troublesome investor. TokePortal also has the right to exclude from the use of the platform. Since every investor can use the platform only after verification and in their own name, this typically keeps away troublesome users.
Characteristics of a Successful Campaign Owner
TokePortal’s 3-year experience shows that there is a significant, yet subtle difference, between unsuccessful and successful Campaign Owners, which can be summarized in three words:
- Good screen presence: a successful Campaign Owner pitches to anyone at any time as if broadcasting on TV. This represents preparedness, determination, confidence, and proactive agility.
- Networking, growing an online follower base, understanding and consistently executing the mobilization of one’s social circle: a successful Campaign Owner knows that they are not “asking friends for money” but representing a cause that their acquaintances might be interested in, even feeling honored to participate in. This represents a culturally advanced attitude, which is the dividing line between begging and seeking investment. The network-effect, the conversion of social capital into investment is crucial. This is called FFF: family, friends, followers. No one misunderstands the frequent mention of fools in the investment environment: they are the good-faith investors. Ultimately, investment is always about trust.
- Understanding the real meaning of the word ‘campaign’, which is about building momentum and an awareness of deadlines.
If all of this has to be summed up in one word, then launching a campaign means stepping out of one’s comfort zone. This is indeed unlike applying for a bank loan, where one submits an application and then waits for the signature and disbursement…
In more detail:
- Diligence and perseverance are needed. Market validation and product-market fit are necessary but not sufficient conditions for the success of a Campaign and, in turn, the business. While a crowdfunding campaign does not require extraordinary work, like in any campaign, there are low points, decisions to reconsider, communication challenges. One needs to repeatedly muster strength for these.
- Credibility is the most important, created by consistent, honest, and ethical communication.
- Although allowed, it is not advisable for a business to be still in the idea phase: a company that is already generating revenue, receiving market feedback, and able to prove demand has a much greater chance of raising capital. Investors give capital for growth, not for paying salaries. So, there should be a product or service and a strong online audience (min. 2000 followers), a dedicated team of at least three, who are very knowledgeable about what they want to implement.
- Building the investor circle. The founders’ network should provide 25-30% of the sought capital. Founders personally, and the business in terms of brand building, must continually increase visibility on social media. Crowdfunding cannot be done secretly. The campaign communication strategy should start to be developed during the pre-registration phase, responding to feedback and learning from it.
- Involving mentors increases the chances in many ways. They are expected to challenge, i.e., thoroughly scrutinize ideas – even before investors – and help think ahead. They assist in preparing investment materials and thus in pricing. Many of them also become investors in the mentored companies. Mentors assist Campaign Owners pro bono for 2 hours a month. Contact should be made with at least 3 Mentors.
- Finding the Lead Investor (see) (and see the article about the lead investor as well). The Lead Investor will be that business angel or institutional investor who can agree in a relatively short time on an investment of at least 10,000 euros and its terms, which can be reflected in the KIIS. In the absence of a Lead Investor, a so-called Delegated person will represent the crowd investors in the decision-making of the Campaign Owner’s business.
- The Campaign Management plan can be most effectively prepared with experts participating in the online marketing audit. This includes the communication strategy and its implementation, budget, which largely depends on the state at the time of the Campaign Launch Agreement, and the planned goals.
- Communication is key in maintaining investor trust. During and after the Campaign, investors must be informed quarterly about the results, milestones reached, and their questions answered. This is the foundation of maintaining trust and the success of future capital raising.
What do Investors Expect, What Do They See in a Successful Campaign Owner?
- Determined founder(s): Determination is characterized by deep market knowledge, diligence, clear vision, detailed strategy, and full-time work. With them is a Dedicated team. Only those who really want to bring their concept to life and are willing to go through fire and water for it, should think of starting a campaign.
- Past performance (traction, validation): The business is attractive if there is already visible market demand, the business already has customers, sales, followers, typically requiring at least 1 year of operation. But there are counterexamples, where the idea, team, follower base, media attention, professional reputation are so great that they validate the product’s existence. In such cases, a higher stake (i.e., lower price) must be offered to investors. If the Campaign Owner’s business is just starting, i.e., does not have enough results yet, then the founders must have such skills that can be demonstrated to credibly lead the business to success.
- A business model capable of becoming sustainably profitable and scalable for growth and/or impact: not only the high-growth technology stories are interesting to crowd investors. There is also an increasing number of environmental/social impact-based, as well as innovative, sustainable, healthy food industry campaigns.
- Strengthening online presence/embeddedness, involving the community, reaching out to local investors. In equity-based crowdfunding, most of the investments come from within a few hundred kilometers of the Campaign Owner’s HQ. In addition to online communication, personal presence, involvement in the local ecosystem is especially important. Crowdfunding is rightly called capital raising through social media communication, and the community needs to be built up. Campaigns with large following and active users are much more likely to succeed than those with low activity.
- Investment structure, source composition: in equity-based crowdfunding, multiple combined structures can be successful: often, in addition to the capital raised in campaigns, there is direct, larger-sum Lead Investor capital, borrowing, grant money as well. Many successful Campaign Owners have built their capital raising on the combination of efficient resource structure and communication advantages.
- A profit structure strongly correlated with the company’s performance, and a team and advisors well-motivated by a stock option program. Founders are characterized by a “below-market” salary before the company’s reaches break-even, i.e., while the cash flow is negative, but this is compensated by the appreciation of owning shares, which ensures long-term thinking since there will be profit from it in the long run, but until then, they can also earn money through revenue-based bonuses.