The equity crowdfunding industry is still so new that best practices and lessons from real life haven’t yet made it onto paper. But there are some very valuable lessons to be learned from related industries and reading these three books will give anyone a crash course in equity crowdfunding.
Venture Deals by Brad Feld
Venture capital can be confusing at first. Some people treat equity crowdfunding as just Kickstarter with equity, but the best players take the capital raising process seriously and have woven the best of how venture capital deals get done into their platforms. Venture Deals by Brad Feld clearly summarizes the world of venture capital. It covers everything from cap tables, convertible notes, term sheets and liquidation preferences.
David Rose is the founder of the online angel investing platform Gust and a leading New York angel investor. Angel Investing by David Rose book is a solid introduction for new angel investors. It’s perfect for someone getting to know the world of equity crowdfunding because it treats startups as real businesses to be understood and invested in on a rational basis.
Transforming Customers Into Loyal Owners by Jonathan Frutkin
This book changed my approach to the entire investment industry. We know in practice that investors in an equity crowdfunding round are a mix of: people on the platform, people who are connected to the startup, and new people who are attracted to the campaign. Equity Crowdfunding by Jonathan Frutkin opened my eyes to just how important turning customers into shareholders can be.
I recently joined the SeedInvest team in New York. SeedInvest is a leading equity crowdfunding platform that is streamlining the startup investing process so that new types of investors can invest directly in early stage companies. I’m responsible for digital marketing and helping startups promote their campaigns to investors. It’s been a big couple of months for me, so I thought I’d take a moment to update you on what I’ve been up to.
1. I’ve moved to New York
New York has always been a centre of financial innovation and the earliest venture capital investors almost all started out in New York before moving to Silicon Valley. I’ve always wanted to live in New York. In late 2014 I won the green card lottery and we have now relocated permanently to the USA. So far, we’ve been using AirBnB to experiment with different neighbourhoods and have fallen in love with Tribeca, Nolita and Brooklyn Heights.
New York has a great environment to build a startup. The city is alive 24 hours a day and there is a great mix of design, business and technical skills. I love the intense energy and the mix of cultures from all over the world.
2. I’m still working with startups
As soon as I knew that we were moving to the states, I started researching the emerging American equity crowdfunding platforms. I’ve long believed that democratising the financing of small businesses will be one of the greatest shifts in the structure of capitalism since the advent of the public stock markets. Allowing new entrepreneurs and new investors to find each other will create new companies, new jobs and new opportunities. I loved being part of investment platform Seedrs in the UK and with recent changes in US securities laws, the timing was perfect to transfer these skills to the USA.
Business design is a new way of thinking about companies as interconnected systems worthy of innovation, creativity and the application of design to the systems themselves. Business design applies the mindsets of a designer to the task of creating the overall strategy and business model.
Business design is a useful way of looking creatively at a company in the context of its customers, suppliers and competitors. Every company needs to combine the disciplines of technology, design and business together to deliver value for a customer. But too often, only the crafts of technology and design are seen as real sources of new innovation (with the business function itself just doing the marketing or arranging the finances). In reality, the business-side of innovation can be incredibly important.
Company valuation is one of the great myths of early stage company finance. Both investors and entrepreneurs get themselves endlessly tied in knots trying to calculate a startup’s value despite the fact that the whole concept of valuation is entirely artificial. How to value a startup is one of the most common questions I get when I present to entrepreneurs on the topic of venture capital and online angel investing. But talking about valuation distracts people from the real issues of economics (amount of cash invested) and control (percentage equity offered).
One of the most common questions that you hear entrepreneurs ask each other is “What’s your valuation”? It seems like a sensible question and it’s a tempting way to compare different companies who are raising capital, but the idea of a single number as an agreed valuation for a startup is a dangerous distraction from the real issues. The term “valuation” is simply a useful shorthand to talk about several independent variables. These variables can be quickly forgotten when you start a conversation with the issue of valuation.
Brant Cooper and Patrick Vlaskovits interviewed VC investor Dave McClure as part of their book the Lean Entrepreneur. The Lean Entrepreneur was published in 2013 and I picked up a copy after seeing Patrick Vlaskovits speak at the Innovation Warehouse in London.
Patrick has a really practical and grounded approach to innovation, growth hacking and the world of startups. He’s been an inspiration to me and has contributed a lot back to the community through mentoring and coaching various startups.
After reading the book last year, I got a copy of the audiobook on Audible. Some of the checklists and bullet-points don’t survive the transition to audio that well, but overall the audiobook was excellent and I recommend it alongside the Lean Startup as one of the key audiobooks for entrepreneurs and investors.
In 2013 Mark Suster a leading VC investor and Clayton Christensen a leading business author sat down at Startup Grind to talk about disruptive innovation and startup investment. Their conversation touched briefly on the subject of equity crowdfunding. Both Mark and Clayton are extremely cynical about equity crowdfunding. Some of their concerns are sensible questions about an emerging industry. But what they were secretly doing was arguing for the old model. I’m a big fan of Mark’s blog and Clayton’s books but they’re wrong about the disruptive potential of equity crowdfunding.
By betting against against equity crowdfunding, Mark Suster is betting against the internet. I believe the internet will do the same thing to early stage finance that it does to all industries. Namely, make them more competitive, connected and democratic.
I’ve worked in venture capital, management consulting and design thinking. But nothing prepared me for the intensity of working inside a startup. I’ve been lucky to have gradually absorbed the startup mindset over several years of working in startup incubators and accelerators. This mindset has allowed me to cope with the intensity of startup life. But the mindset needs to be learned.
Some of the things that you need to succeed in a startup are techniques and information, but the bedrock is the “startup mindset”. This mindset takes time to acquire. I enjoy a good TED talk or conference video. But spending a several hours listening to an audiobook written and read by someone who lives the mindset is one of the best ways you can start to think like a startup person.
These days I get a lot more requests for coffee. My policy in the past was always to say yes to meeting new people. In fact, I wrote a whole blog post about why having coffee with 50 people could change your life. I pride myself on connecting with a random assortment of interesting people across all sorts of industries. I guess you could say that I’m a pretty friendly guy.
Recently I’ve started to notice correlations between whether a coffee meeting is useful and some common factors (that are obvious before we sit down). So I’m starting to filter my inbound coffee requests a little bit more than I used to. I still love meeting new people, but these days a coffee catch-up has to be short, sharp and effective.
Seedrs provides a tool that startups can use to raise capital from their friends, family, customers and the crowd. This process is often called “equity crowdfunding” because it’s like Kiva or Kickstarter, except that the investors get equity in the company instead of a product or a loan. In January 2014, I joined Seedrs as part of the marketing team.
At the end of last year, Seedrs raised 2.58 million pounds from over 900 investors using their own platform. That means that in my new marketing role, I now have over 900 bosses. I feel very accountable for the success and growth of the business. In this blog post, I want to share two main things about my new role, the expanded view of marketing that we’re taking at Seedrs, and the way that we’re incorporating lean manufacturing habits and processes into our team culture.
Having coffee with fifty people is a great way to get input for a new project, startup or career move. I first wrote about the fifty coffees idea in Inc Magazine and it was based on an insight from Silicon Valley investor Mark Suster. Personally, I’m a bit shy so meeting fifty new strangers was a great project for me.
Last year, I wanted to immerse myself in London’s design and innovation scene so I had coffee with fifty people working in the industry. I learned a lot from their advice and even more from the questions that they asked me. I asked them about the future of innovation, design thinking and how different companies are adapting to social media. It was also a good excuse to check out some new cafes for my coffee blog the Coffee Hunter.