At Spark Crowdfunding, we meet companies every day that are looking to raise new funds for growth. Many of the same questions arise at these meetings.
We therefore thought it would be a good idea to capture the answers to these questions in a single blog post and share it with our readers. Feel free to ask any additional questions on our Contact Us page.
1. How long do campaigns last?
Equity Crowdfunding campaigns typically last for 30 days, but it is at the discretion of the company raising funds as to how long a campaign will run. There is no law or rule that states how long a campaign could last, so, in theory anyway, a campaign duration could be as short as one day, or as long as 12 months. We would recommend something between 30 and 40 days.
2. Can I extend my campaign if I don’t achieve my target?
Yes. Campaigns can be extended any time during the campaign and for as long as the company raising the funds chooses. It’s perfectly normal for a campaign to be extended if a promoter believes a higher amount could be achieved by extending the campaign.
3. How much fees do I pay?
Investors pay no fees to invest in Campaigns. The company raising the funds pays a flat fee of 6% (plus VAT) if the campaign succeeds in reaching its original target. No fees are payable if the campaign does not achieve its target.
4. Are there any other Costs that a company must pay?
The Company raising the funds is liable for the Credit Card Admin Costs associated with collecting the funds. This is typically 1% of the amount raised. Another cost that needs to be considered is the cost of setting up the Nominee Structure that manages the new shareholders who invest in the company. Spark Crowdfunding can recommend a specialist Irish company that offers this service. The company raising funds is also responsible for paying its own legal fees. Please contact us for more information on the likely costs associated with each of the above.
5. How do I deal with all of the new Shareholders that come through my campaign?
Under Irish Company Law, the maximum number of shareholders that a private limited company can have is 149. Companies raising funds via equity crowdfunding often attract a large number of small to medium sized investors. Rather than adding all of the individual shareholders to the Shareholder Register, instead a Nominee vehicle is used to hold the shareholders, so that only the name of the Nominee appears on the Shareholder Register and the Company’s Cap Table. Therefore, if 300 investors invest in a crowdfunding campaign all of these investors will go into a Nominee structure and this Nominee will appear as one shareholder on the Shareholder Register and Cap Table.
6. How do I decide on the pre-money valuation of my company?
Company valuations are subjective and depend on many factors, including Annual Revenues, Net Profit, Financial Projections, Achievements to date, Intellectual Property, Previous Valuations and, most importantly, the Track Record of the Management Team. The company raising the funds makes the final decision about the pre-money valuation for a fundraising campaign. Spark Crowdfunding has a number of small investor clubs who would be willing to offer a perspective on a proposed valuation prior to a campaign going live.
7. What information do I need to provide before my campaign goes live?
Companies looking to launch a campaign on Spark must first complete our Campaign Application Form. This is quite a lengthy document that sets out the progress the company has made to date, the profile of the promoters and the growth plans for the Company, together with financial projections. This allows us to determine whether or not the Company is suitable for an equity crowdfunding campaign. If the Company appears to have good prospects and is suitable for a Campaign we then request a range of Due Diligence documents, including a Tax Clearance Certificate, Memorandum and Articles of Association, Company Constitution, Cap Table, most recent Annual Audit and the promoter’s CVs.
8. How do I promote my Equity Crowdfunding Campaign?
There are many ways in which a campaign may be promoted and we would be happy to assist entrepreneurs in preparing their strategy for this. A good press release announcing the campaign is important. The company’s own customers or users should also be invited to review the campaign and become a shareholder. Email marketing is a low-cost way to approach this. Social media marketing, using LinkedIn, Twitter and Facebook is also low-cost and easy to do. Paid advertising on the social media channels and Google could also be considered. In addition to the above, Spark holds regular investor evenings at which companies raising funds are given an opportunity to pitch. Spark also arranges webinars where companies present their campaign to an online audience.
9. What is the minimum an investor can invest?
This is at the discretion of the Company raising the funds, but we would recommend an amount of €100 as the minimum that an investor can invest in a campaign.
10. What is the difference between Equity Crowdfunding, Crowdlending and Rewards Crowdfunding?
Equity Crowdfunding involves selling part of your Company. New shares are issued to outside investors based on the number of shares an investor purchases. The disadvantage of equity crowdfunding is that the owners are selling part of their company, but the advantage is that the funds invested to not have to be repaid, nor does any interest need to be paid on the amount invested. Crowdlending is where a group of lenders is assembled and these individuals lend money to the Company. The funds need to be repaid, with interest, typically over 3-year period, but the company owners are not selling any shares in the business. With Rewards Crowdfunding, the people who put money into the Campaign do not receive an equity shareholding in the company, nor are they making a loan that needs to be repaid. Instead, they receive a reward, such as an early version of the product at a discounted price. Spark Crowdfunding only offers equity crowdfunding and is the only company in Ireland to offer this service.
11. Is Crowdfunding regulated in Ireland?
Crowdfunding is not yet a regulated service in Ireland. It is our understanding that the Department of Finance is looking at the whole area of crowdfunding in Ireland and we believe a new regulatory framework will be introduced in the near future, a move that would be welcomed by Spark Crowdfunding and the crowdlending platforms in Ireland. Spark Crowdfunding does not hold any funds on behalf of it clients, nor does it give any investment advice to its clients. Additionally, Spark takes no trading risk and does not invest in any campaigns on its platform.
12. How many investors does Spark Crowdfunding have?
New private investors are joining Spark every day and the company now has thousands of qualified investors on the database.
Equity crowdfunding is a simple, low cost way for entrepreneurs and companies to raise money from a wide pool of investors to fund their new ventures.
A company posts its Project on the crowdfunding website and specifies how much money it is looking to raise and for what percentage of the company. Entrepreneurs should think of their pitch as if they were going onto "Dragons' Den", highlighting the key reasons why someone should invest in their company.
Once the campaign goes live on the Spark Crowdfunding website, investors are invited to subscribe for shares in the company and can invest anything from €100 to €1 million. The higher the investment, the more shares the investor receives.
So, let’s say Acme Enterprises was looking to raise €1m in return for 40% of the equity in their company. If someone invested €500,000 they would get 20% of the company or if someone invested €250,000 they would get 10% of the company. Therefore, if someone invested €25,000 they would get 1% of the company.
Put simply, equity crowdfunding is a way for companies to raise money from a wide range of small to medium sized investors. Campaigns typically run for 30-45 days, depending on how much the company is looking to raise, although campaigns that are close to reaching their target can be extended, at the discretion of the company raising the funds.
The company must achieve its full target before a campaign completes 'successfully', although a higher amount than the initial target can be invested in the company. The company pays no fees unless the campaign is a success. The company pays a fee of 6% on funds raised - the investor pays nothing.
Contact Spark Crowdfunding today if you would like to discuss any aspect of equity crowdfunding in Ireland.