Crowdfunding is a relatively new route to funding and, having raised £150k for a 10% equity share of the business in April last year, we’ve often been asked how we did it. We’ve spoken to lots of other entrepreneurs about this and, as we’re now looking to raise our second round of funding, we thought we’d share our story.
Over the course of the next month, we’ll be publishing a series of three articles. Our experiences will give you an insight into what to expect.
So, who am I and what’s the business?
My name’s Scott and I’m a Co-Founder of Tutora, a two-sided marketplace which helps match students and tutors. We cover every subject and every age, and hope to take the stress out of finding a bit of extra help in your studies.
The idea came about when I was working as a primary school teacher in Sheffield and I saw how difficult it was for parents to find a good tutor. I ended up leaving teaching to become a full-time tutor myself, before deciding I could do something more.
Alongside Mark, my Co-Founder and friend since school, we launched Tutora. That was a little under 18 months ago.
We’re delighted with how quickly the business has grown, having scaled rapidly to now have over 6,000 tutors teaching thousands of lessons each week across the whole of the UK.
To Raise, or not to Raise?
I think there’ll come a point in every big business’s growth at which you have to decide, as founders, what you want it to become. Do you want it to become a hobby business, from which you can take a regular salary and maybe some healthy dividends at the end of each year, or do you want to push on?
Our cash flow is good and we don’t need to raise. We hope to soon hit profitability and could start to grow a relatively successful and potentially more relaxed business, but that’s not our goal.
For Mark and I, we’ve never contemplated slowing down. All we want to do is to grow something that can help as many people as possible, and become as large it can be. We’ve always been incredibly competitive (especially against each other!) and I think we’ve both brought that to the business.
The question for us was how to push on?
We sat down and drew up a list of features we’d like to add to the site, new advertising channels we’d like to tap into and markets we wanted to address. At the end of our conversation, we had an incredibly challenging list of ambitions, and none were going to be accomplished on the cheap.
Crowdfunding or VCs?
Once we’d decided that we needed funding, we looked at our options and saw that we sat at the cusp of VC funding. Most VCs will only contemplate investing at a level significant enough to make a dent on their portfolio, which generally falls close to the £1m mark.
Our list of features could certainly be better accomplished with that level of funding, however, we’ve always had a lean startup mentality, in which we wanted to have a tight rein on spending – making sure that we are laser focused on our end goal of pushing the number of bookings through the platform. With this level of funding, we felt that our focus would be jeopardised and, rather than helping us in our aim of becoming the largest tuition company in the UK, we felt that we could be knocked off track, spreading ourselves too thinly.
We reached out to VCs to find out more, and there are many who will consider smaller levels of funding. There is certainly an aura around institutional investment, with many entrepreneurs seeing this as the top of the funding tree. For us, however, VC funding seemed to come with too many strings attached and the allure of returning to the crowd was strong.
Why go Back?
Crowdfunding offers businesses a unique opportunity in that it not only allows you to secure but it also allows you to gain new users. For businesses like ours, which are tackling a problem so keenly felt by so many people, it’s a great opportunity to let even more people know how you can help them.
Similarly, it’s a brilliant chance to bring together a range of angels to invest together in one place. That being said, it’s a far more time-consuming process, as you are not just reaching out to one corporation, but many more potential supporters.
That’s where we’re at currently.
Building your Investors
Crowdfunding isn’t a guaranteed route to funding. Many pitches which go live simply fail to hit their targets, and the founders leave empty handed. The rule of thumb for the the largest sites is that unless you hit your target figure, you don’t receive any of the funding pledged.
It’s vital, therefore, that you put in the groundwork to bring investors to the table with pre-committed money. I’ve had people ask why you’d put investment you’ve found independently through a site which charges commission, but I think that misses one of the major benefits of using such sites, in the legal fees and simplicity of the deal structure afforded.
I also think that it’s important to have lead angels who can signify to others their own commitment and belief in the business. The idea of such investors is that they pave the way for others to follow, offering a level of confidence. They are independent, serious business people, who will ask challenging questions of us as founders and of the business plan – I think that’s vital to making sure that every investor gets the best deal possible, and for holding us to account.
We’re fortunate enough to have a great base of existing investors, who we’re proud to have on board. We hope that they’ll continue to support us in the forthcoming round, but we’re also excited about bringing more investors to join us.
We’ve met some wonderful advisors since last April and have gratefully received their advice. We hope that they’ve seen enough in us, to now want to commit more fully to the business.
I’d recommend to any founds who are contemplating raising, not to hold back on your efforts in this regard – find those people you’d like to get on your side, and get in touch with them. LinkedIn is a great first port of call for making contact, but be inventive. Social media can be a great way of making someone aware of you.
The Final Touches
So where does this leave us?
Our pitch is all but completed – we’ve put a lot of effort into trying to bring our brand to the pitch and have had the graphics commissioned. Similarly, we must have read and re-read the copy about a thousand times! Even then, the finality of clicking the ‘Submit’ button will, I’m sure, feel awful.
The truth is though, we’re proud of the business and know that we’ve got a great offering. We think that the business plan makes compelling reading, and I think the nerves come in feeling that we’ve got a responsibility to make sure that we highlight all that we’ve achieved in the best way possible and not let ourselves down by not quite communicating our ambitions.
We’ve had a video filmed and are in the final stages of editing this. Tomorrow, I’m off to the editor’s to go through the final shots before we can add the graphics. It’s an exciting, yet time-consuming process.
I think this is often something that can be overlooked. Crowdfunding is time-consuming! It draws you away from the everyday tasks of the business. It’s 10pm at night now and I’m writing as my partner relaxes in bed. These are the times when the day job becomes the night job, as the raise takes precedence – okay, so it’s always the day and night job when you’re running a start-up, but you get my point!
If you wish to follow us check us out on Crowdcube. I’ll write again in the first few days of the pitch to let you know how it’s all gone and how we’re feeling!