Finance and Funding
Crowdfunding is a great way to raise capital from the public without going through market regulations. Crowdfunding platforms offer startups to raise large capital from investors, customers or lenders. It’s an increasingly popular form of raising funds because it generates social media PR, interest from customers early, and allows social movements to mobilise their cause. Investors will either invest small amounts of money in exchange for equity or make an early payment for the product. Oman’s Capital Market Authority has recently announced regulations for crowdfunding activity. The important facts are:
- Allows platform operators to provide crowdfunding through donation, reward-based, equity and peer-to-peer models.
- Funding is only for commercial companies and enterprises, not individuals
- Investors from outside the Sultanate are allowed to invest through Omani crowdfunding platforms; similarly, companies in and outside of the Sultanate can raise funding through these platforms.
- No restrictions on amount for sophisticated investors investing via equity crowdfunding platforms, a limit of OMR 100,000 (USD 259,024) for angel investors within 12 months and a limit of OMR 20,000 (USD 51,804.9) for retail investors within 12 months.
- Funding applicants operating over a year with audited financial statements from a CMA-accredited audit firm may apply for funding exceeding OMR 100,000, whereas companies constituted less than 12 months can apply for funding up to OMR 100,000 with approved financial statements prepared not more than two months before.
- Where an Islamic investment note is offered, the operator must establish and maintain a Shariah-compliant account with an Islamic bank or approved by the Central Bank of Oman.
- Where an Islamic investment note is offered, a Shariah advisor — either individual or company — must be appointed.
- The Shariah advisor is to advise and monitor the Shariah compliance of Islamic investment products offered and issue Fatwas where applicable.
- The operator, including employees, shareholders and board of directors, must disclose to the public on its platform if it provided loans or guarantees to any fund applicants hosted on its platform; if it holds any shares in any of the applicants; if it pays any referrer or introducer or receives any payment in connection with an applicant.
How to crowdfund
There are three ways to raise funds through crowdfunding – equity-based, loan-based or reward-based. Regardless of the route you choose, you’ll need to provide documentation, such as a business plan, pitch deck, and financial projections, to make it attractive to your investors.
Companies receive funding in return for a small amount of equity. The primary providers worldwide are Kickstarter, Indiegogo, and in the UK, the common platforms are Crowdcube and Seedrs. In these platforms, you can invest as little as USD 13, and small businesses/startups can raise at least USD 13,000, with a limit on capital that varies from platform to platform.
Startups receive crowdfunding in exchange for loans that are repaid with profit.
Companies sell their products and provide a reward as a form of thanks for early investment. The reward can be gifts, a large discount, unique versions of their product, or other rewards that would make their process special.
Marketing and promotion
Now that you know how crowdfunding works, you can briefly look at some key aspects of marketing and promotion. This section will focus on some key aspects that you need to know to prepare. As the industry in Oman grows larger and becomes available, these best practices will be established over time.
Crowdfunding requires you to have a team with a good set of marketing skills and ideas that would make you stand out. Some crowdfunding campaigns start months before the actual launch date.
Crowdfunding allows you to build a loyal following of customers early on. You’ll need to offer them regular updates of your product and business. If many people invest through crowdfunding, it might make it difficult for you to manage their expectations.
Take a look at different successful projects in Kickstarter, Indiegogo, Crowdcube and Seedrs. One of the most successful Crowdcube campaigns in the UK was Revolut, a fintech company, in 2016. They have raised multiple funding rounds at later stages and are now valued at over USD 25 billion.
Launching through early campaign
Not all campaigns can quickly gain customer attention as soon as they launch. If your startup isn’t well known, you will need to plan your campaign, create an appropriate delivery plan and make it easier for you and your team to organise and deploy carefully. Your marketing campaign should start at least two to three months before the build-up to the days before the launch date.
According to experts, most crowdfunding projects are successful if they are planned months ahead. Most projects, on average, run for one to two months. However, funds are mostly reached within the first few days. It is important to build an actionable list before and gather user interest.
You might not get away with a heavy lead building before your campaign launches. According to Indiegogo, a company is five times likely to receive funding in total if you reach at least 25% during your first week. Studies have suggested that visitors stay on the project page for 31% longer and are 22% more likely to contribute. Having content on your page to engage with the community is a great way to attract leads in this landscape.
Conduct your research
Over time, more data on crowdfunding will be available. You can conduct your research on Google Scholar to see existing open-sourced data to learn statistics. As mentioned earlier, it is best practice to collect and review information on successful crowdfunding campaigns launched on existing platforms. Most campaign platforms have kept the pages alive. Therefore, large data info is publicly available for you to learn from – these are actionable insights, and they can also teach you about the mistakes.
Design your message
Similar to any other funding process, crowdfunding is also stressful. Your pitch will need to gain attention in a short period and reach as many people as possible. You will need to give some thought to the outreach campaign, including while targeting a niche market. Even a free product will require some form of campaign personalisation.
One of the major factors will be updating your potential users – give them your updates via newsletter. Being idle will not be helpful if a potential investor signs up early. Use your target market for word of mouth – ask them to share the campaign on their social media.