Offer Content For Crowdfunding Success

Offer content is the key information that potential investors use to find out about your company, your team and the investment proposition. Offer content may be readable on a website, or downloadable in a disclosure document of some sort. Either way, it's an essential part of your equity crowdfunding efforts.

While the New Zealand regulatory regime says it is permissible to run an equity crowdfunding offer without special offer content narrative on your business, it is nonetheless an essential commercial requirement - whatever the law says, investors won't commit money unless you produce high quality offer content.

I am the founder of Assemble Advisory, which helps company founders put together great equity crowdfunding offer content. Many company founders find writing offer content to be frustrating, time-consuming and drawn-out. But with the right knowledge and high quality assistance, it is possible to make the process as painless as possible.

It's a mistake to think that just getting the offer content "done" so that your offer can "go live" is enough. Remember, your offer content is all that new investors have to understand the investment proposition - so the quality of your offer content will have a direct impact on whether, and how much, these investors decide to commit. You don't want your offer content to be a "pass". You should be aiming for an "A+".

I find many of the same issues come up time and time again when putting together offer content, so I've put together the following guidance to help you get started.

1. Start Early

It's fair to say that no company founder in history has ever uttered the words "Writing offer content was more straightforward and took less time than I thought it would".

Writing offer content is, by nature, an iterative process. Expect tough questions. Expect to be asked for further data which won't be easy to get. Expect a lot of back and forth. Expect completing the offer content to take weeks, and almost certainly more weeks than you initially imagine.

If your venture needs to raise capital in a hurry, the offer content requirement alone means equity crowdfunding is not right for you. It's a process that can't be rushed, and a good platform will not let an offer go live if the offer content is not ready, no matter how urgently you need the capital.

2. Precedents Are Your Friend

An extremely good use of time when getting started is to clear your schedule for an afternoon and sit down with a few past equity crowdfunding offers and read their offer content - all of it.

Since these precedents are the "finished product", they show the standard you need to eventually get your own offer content to. Reading precedents will give you a great feeling for what is typical in offer content and get you thinking about what to include in your own offer. Crowdfunding platforms will be more than happy to direct you to relevant precedents to get you started with your reading.

Once you've read a few, you will surely notice that offers tend to be unique in content, but similar in structure. A good equity crowdfunding platform will provide you with a template that already has the headings of the various sections, e.g. "Investment Highlights", "Industry Overview", "Company Overview", "Risks and Mitigations", "Competitive Landscape", etc. Use this structure when beginning the actual writing of your offer content - it will save a lot of time later.

3. Leverage Existing Material

Your offer content should explain what your business does, in a way that someone from a non-technical background can easily grasp. Fortunately, you have most likely done this before.

To get the content aggregation started, simply copy-and-paste material you already have on your website, marketing brochures, and internal business plans under the headings where it seems to best fit (based on your prior reading of precedents). This way, you can quickly put together a decent initial document for further improvement.

4. Quantify Your Market Size

Customers can be segmented by geography, by demographics, by preferences and in innumerable other ways. How to best profile your target customers really depends what makes sense to give potential investors the clearest possible idea of who you plan to sell to. Are you hoping to sell to women aged 25 - 40 in major metropolitan cities in New Zealand, or is your product a B2B solution for operators of high-speed trains in Europe?

Once you have identified your target customers, your offer content needs to be fortified with the data to quantify how valuable these have the potential to be. Investors intuitively understand the importance of exposure to large and growing markets, so it will be extremely helpful to your case if you can show that your venture is operating in such a space. Of course, it is not enough for an entrepreneur seeking funding to simply assert that a market is large and growing - you must show: "how large" (measured in dollars) and "how fast-growing" (percentage growth per year). Base your data on reliable third-party sources such as industry bodies, government statistics, research reports, and media surveys. I have written more on the specifics of quantifying market size in another article (click here).

Including market size figures in your presentation pre-empts the questions that the platform and potential investors are going to ask anyway. Having this data to hand shows that you are on top of the trends shaping the space that your venture is operating in, significantly enhancing your credibility. Though the data may not always be easy to come by, investing the time to find it is absolutely worthwhile.

5. Detail Your Plans

Given an attractive market, you need to convince a sceptical audience that your company has the potential to succeed in it, or better yet, has an established track record of already succeeding in it. What product categories do you have? Do these product categories match the actual needs of the target market you have identified? Who are your competitors, and how is your business positioned differently from them? How can your business use these differences to its advantage?

The competitor section is one of the most important in the document. For high growth and early stage companies, I usually recommend naming your 5-10 most similar competitors and detailing how your business is different to each. It is also useful to compare your venture to the most important large incumbents in the market, even if they have quite a different business model to yours.

You should also detail the main risks you foresee in your plans, and what steps you will take to mitigate them. Writing an extensive list of risks and mitigations shows investors you have already thought about the problems that may arise and have a strategy in place for dealing with each. The potential risks your venture faces is of course heavily specific to your business, but again - check precedent offer content and your internal business plans for the sort of risks to think about including.

6. Establish Your Credibility

The most important thing potential investors are trying to ascertain in your offer content is your credibility in being able to execute your plans. This is because imagining success is easy, but implementing success is hard. So whatever you can do to establish your credibility, the more likely you are to stand out in the eyes of investors.

Credibility can be demonstrated in several ways - one is research (showing you have thoroughly done your homework on your market size and competitors, as explained earlier). Another is traction (the successes you have already had in fields such as design, patents, well-known customers, awards and testimonials). Yet another is the track record of the people in your team (their past experience in similar ventures).

Of course, the best way of all to establish credibility is cash flow. Having real, cash-paying customers is the ultimate validation of your idea. Cash flow will also allow you to point to the track record of growth that you have already been able to achieve, which makes your future projections in the financial section much more credible as well.

7. Mirror The Model

The offer content narrative has very little basis without a solid financial model that backs it up - a good financial model ensures that everything in the other sections has had rigorous analysis put into it, and makes sure all parts of the offer content cross-refer to each other consistently. In fact, a financial model and the offer content narrative are best seen as two sides of the same coin - the model calculates, while the narrative articulates. A financial model is essential to all early-stage and growth ventures, even those that aren't raising capital.

You need to lay out a roadmap through your financial model on how you plan to reach success, month-by-month, and then clearly communicate these plans in the offer content. Sections such as the go-to-market strategy and projected revenue will need to flow directly from your financial model.

Investors will not hand over money to your company for you to later decide how it will be spent; the use of funds section shows investors your plans. To be attractive, the money raised in the offer should mainly be spent on sales, marketing and product development efforts - things essential to growing the business. Since equity crowdfunding offers usually have a "minimum" and a "maximum" raise size, this use of funds section also needs to detail what will be done with different levels of new capital - for instance, perhaps additional capital gives your venture more time to reach success, perhaps you would step up the selling efforts, or perhaps you would launch additional products.

8. Value Your Company

You need to make sure that the valuation is fair to new investors coming on board through the crowdfunding offer, as well as existing investors. The existing operations of your company must be valued to determine the size of the slice new investors get in exchange for the cash they contribute. The calculation of percentage ownership gained trips many entrepreneurs up.

Striking an ideal valuation figure is more of an art than a science, but don't disregard the science completely. New investors will tend to gravitate to certain valuation "anchors". As a company owner, it is critical to understand them, as these anchors determine, in large part, how investors will view your offer.

For early stage / growth companies, the most important valuation anchors are:

• Discounted Cash Flow: Uses your financial model to forecast future revenue growth, profitability margins and capital expenditure requirements, then takes the projected future cash flows "back to today" to give a valuation figure using a "discount rate" (a measure of risk, somewhat similar to an interest rate). Discounted Cash Flow value tends to be highly sensitive to inputs, meaning the assumptions you use must be clearly justified and seen to be reasonable.
• Multiples: A "multiple" takes a valuation and divides it by some income measure (commonly revenue for early stage / growth and loss-making companies). A valuation of $2 million for a company making revenue of $1 million thus has a "Revenue Multiple" of 2 million / 1 million = 2x. If you know that a 2x revenue multiple was used with a similar company ("similar" as judged by industry, growth rate, traction level, etc.), you can use it as a starting point to value your own business, by using your own revenue figure and multiplying it by 2.

You should get proper, professional independent advice on valuation - it's a critically important area to get right, and this article can barely scratch the surface of the issues involved.

One final word, some suitably qualified chartered accountants can offer an "independent valuation" which can be referred to in your offer content as justification for the pre-money valuation you decide. While there is obviously a cost involved with this, it can be worthwhile to enhance the credibility of your valuation.

9. Think Like An Investor

One common mistake is to try to appeal too much to potential investors' philanthropic side. This is fine for rewards crowdfunding, but equity investors are hoping to make a return on their investment. If your company can also deliver some kind of social benefit, so much the better, but don't focus your offer content on "saving the world" at the expense of talking about the financial returns that can be made in the process.

Hone in on the business case, and clearly communicate why your offer represents a great investment opportunity. Of course, the best way to make your offer sound like a great investment is for it to actually be a great investment - so make the terms of the offer friendly to new investors.

Another section which deserves attention (in the spirit of thinking like an investor) is the exit strategy. Investors motivated by a financial return will be hoping to see liquidity on their investment at some point. This could be through dividends, trading on a secondary market like NZX, or being bought out in a trade sale. Think hard about what you see as the most likely ways for your new investors to eventually realise a return on their investment.

10. Tell It All

One feature of crowdfunding is, unlike with venture capital or angel investing, investors are usually not doing their own due diligence in the investment proposition outside of what is disclosed in the narrative the company provides. This means if a concern of theirs is not adequately addressed upfront, the smart investor will tend to be wary. If a positive feature of the offer is not given adequate cover, it's an opportunity lost. Therefore, what is written in the offer content needs to cover all bases.

The crowdfunding platforms will require you fully disclose such things as related party transactions, employee options, the governance model and future fund-raising intentions. If there is anything which may raise "red flags", be upfront about them early on. It's in your own interest to tend towards more disclosure rather than less.

The golden rule: If the information seems relevant or material to a new investor's decision to commit money to your venture, disclose it.

11. Write The Summary Last

Once the rest of the narrative has come together, write two more sections, limited to one page each:

• Letter to investors which gives a short history of the company to date, the current opportunities the company has in front of it, and rationale for the current equity crowdfunding offer.
• Investment highlights which uses a few bullet points to succinctly summarise the main attractive features of the business and the offer, using key figures found elsewhere in the offer content.

Many investors will choose to read on (or not) based on these two summary pages, so these are absolutely vital. Use these pages to really drive home the key messages you want to convey to new investors as to why they should consider coming on board as shareholders.

12. Follow Advice

This is the most important tip I can give. Prepare yourself for the following scenario: it's late at night and you are weeks past when you expected your offer content would be complete. There have already had more revisions than you can count, and all you will want is for the platform and your advisors to stop asking questions, and for your offer to go live. This is the time to remind yourself that having an offer go live is not the final outcome you're seeking - what you really want is for the offer to raise money!

The platform and your advisors want your offer to succeed, and have been through this process far more times than you have. Most likely, their experience means they know the questions investors want the answers to, what it takes to present your company in the best possible light and what is required to make your offer content an "A+", not just a "pass". As tired as you will probably get of the endless probing, answer all their questions cheerfully and avoid pushing back on their requests and advice.

Putting together a well-structured "equity story" through great offer content is one of the most important investments you can make as a company founder. It will help you to maximise the chances of a successful / oversubscribed offer - the value of which can hardly be overstated. Your offer content is not a box to tick, it's critical to get to the highest standard possible.

While no platform or advisor can eliminate the need for a company founder to invest quite a bit of time in putting the offer content together, the good ones will be able to guide you and help with the work required. Using their expertise will ensure your precious time is well-spent, so that you can get on with doing what you do best - driving development and growing the business.