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Crowd-Investing: Your first IPO

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With LinkedIn, Groupon, and other tech companies in the news for going public, you can now pay attention to their IPO process and see the similarities to your crowdfunding strategy on Venture Bonsai. The motivations for IPO’s and crowdfunding are the same, and both involve drumming up demand, picking a price, and issuing securities to a large number of investors. Once your company makes it to an IPO (of course, if you decide to turn down all the acquisition offers) you will feel confident and in control, because hey, you’ve done this before.

The American IPO Process

1. Initiation

The IPO process is initiated by appointing roles to outside entities whose job it is to make the process run smoothly. Here, the company will decide on its underwriter and registrars.

2. Pre-Issue activities

The company now prepares its forms and documents. One such document is called the Prospectus, which is a part of the Due Diligence process, and contains all the facts an investor needs to make an educated investment. This document also fills a marketing role because the SEC limits the company’s marketing activities while it’s in the IPO process.

3. Filing the documents

The company then files its registration statement with the SEC, and begins its the roadshow begins.

4. The Roadshow

Now the senior management team, underwriter, and lawyer  go visit institutional investors in multiple cities to make presentations and pitch their company’s value. Management can only advertise the same information that’s written in the prospectus because the company is in a “quiet period”.

5.Book Building

While on the road, the underwriter will ask institutional investors to indicate how many shares they would like to buy, and then start building their “book” of of potential orders. On the day before the firm goes public, the Underwriter will consult the management team and decide on the offer price and number of shares to be sold based on their order book.

The next day, the firm goes public and starts trading.

The Crowd-Investing Process

1. Initiation

Register for Venture Bonsai and start by creating your personal profile. Also invite members of your team and have them create their own personal profiles.

Take a tour of Venture Bonsai and notice that when you click on someone’s personal profile, there are features to indicate whether you trust or have meet the person. Raising capital can be difficult between strangers, so use this to build your network of trust.

We follow all applicable financial regulations. Currently companies must be founded in the EU, however, it can be possible for your U.S. based company to get funded on our service. Contact us for more details.

2. Pre-Issue Activities

You start preparing for your round by building your company’s profile. We recommend building your company’s profile well ahead of time so you can build trust with investors. On your company’s pages you can provide basic information about your company, add pictures, PDF, and video about your products. This markets your company and informs your investors somewhat like the Prospectus.

An actual Prospectus is not needed, however, because we take advantage of an European securities law which states 99 investors from each country can view round information without a prospectus. This makes it easier to run a funding round, and is why we have an “invite only” scheme for your actual round marketing.

Other Pre-Funding-Round activities include preparing your legal documents like the Shareholders’ Agreement and Term Sheet. We make this process easy by providing free, high quality, standardized documentation that is designed to be acceptable to both entrepreneurs and investors. You can also use your own documents, or a VC’s.

An optional step at this point is completing a Company Health Check. It’s a standardized check completed by a third party lawyer that helps reduce your investors’ uncertainty about your standing.

3. The Roadshow

A soon as you have your company’s profile ready, you should start marketing your company and upcoming round. You can use Venture Bonsai’s built-in tools to provide updates of your company’s progress to the investors already on our platform. You can advertise your company and its products on your public profile, while leaving the actual round numbers and details in your private Investment Room when you start the round.

To use as a starting point of a conversation, you should upload a video that reaches out to investors and demonstrates your value. If you need some prompting, here you can find our blog post on questions to answer in an investor pitch video.

And also alert your personal networks (like LinkedIn, Twitter, and Facebook) that your company will soon be having a funding round, so they can register for Venture Bonsai and follow your progress. You may also consider marketing your company to more institutional sources of funding, like Angels and VC’s, so they can consider investing in your product as well.

4. “Book Building”

Before you initiate your funding round, you should gauge the demand for your company and research the valuations of similar companies. Use our calculator to determine your share price, the numer of shares issued, the minimum and maximum raised, and your valuation. At this time, you should also consider how long you want the funding round to last.

5. Initiation of the Funding Round

Now you really reach out to investors and invite them to view your Investment Round page, which opens when the round is initiated. This invite-only page contains your official documents, a private video, and a private Q&A section (where you can take part in the Due Diligence of answering all of your investors questions).

Invested money goes into a safe Eschrow account. If the round does not reach its threshold, all money is returned back to investors.

When the round is completed, the money will be transfered to your account and you can start putting it to good use! You are now a privately held company! Keep in touch with your investors because now you can use the crowd. Read more about The Crowd Effect here.

Sign Up for Venture Bonsai


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