To overfund or not to overfund? The equity crowdfunding question

The three questions we asked ourselves before deciding whether or not to overfund on our equity crowdfunding campaign.
Wrisk staff infront of a screen showing their crowdfunding raise on Seedrs

Hurray, we met our £500k crowdfunding target just five days after public launch! Let’s pat ourselves on the back, close the campaign and…

Wait. Hold up. People are still putting money in. Now we’re at 105%. 110%. 125%...

At its peak, Wrisk’s crowdfunding campaign reached over 140% of the target, with over 500 people willing to invest. And we faced two choices:

  1. Turn away everyone who invested after we reached £500k in the bank
  2. Release more equity and extend the campaign up to a new, higher target - ‘overfunding’

How do you choose?

Here are the three questions we asked ourselves before making a final decision.

1. What is your motivation for crowdfunding?

We wrote an entire post on our decision to crowdfund. The key line was this:

“Our decision to crowdfund is less about the funding, more about the crowd.”

Don’t get me wrong - money is important. Money gives us runway, the amount of time we can survive before we start generating revenue. Money gives us freedom to do important things, like recruit, without worrying about needing to cut corners elsewhere. Money gives us the ability to celebrate achievements, rewarding the team appropriately for hard work and deadlines met

However, we recently completed a £3m super seed round and continue to field interest from institutional investors. Money, as vital as it is, was not our primary motivation for crowdfunding.

For us, there were two nightmare outcomes: firstly, that we would spend the full 60 days campaigning and fail to meet our raise. (Even now, having met our raise, that’s still right up there with ‘I went to school in my underwear’ levels of nightmare fuel.) However, for Wrisk specifically, having the full £500k invested by just a handful of wealthy individuals would also have been a terrible outcome. We didn’t want a few people investing a lot of money; we wanted a lot of people to invest a little, proving the demand and inevitability of our service.

Thankfully, we got our wish. Our goal was to gather over 200 new investors. The moment we hit 100% funding, we had exactly 300. At the time of writing we have over 500 people trying to invest in Wrisk. To put that into context, it’s not unusual for financial services products to raise far higher sums through equity crowdfunding from under 300 investors. Our primary motivation was to engage the crowd - and we had succeeded.

So, if the crowd was what mattered and more money would give us more runway and freedom, overfunding was the obvious choice for us… right?

We thought so, and worked on the basis that we were going to overfund - but that’s not a decision you can just make on your own.

2. What obligations do you have to existing shareholders?

In rewards-based crowdfunding, as seen on platforms like Kickstarter, creators considering overfunding need to ask questions on how scalable their production process is, how sustainable their business model. For equity crowdfunding, you need to consider how much of your business you’re willing to sell.

Deciding how much equity to release is a huge decision. We had a number of thoughtful conversations with our lead investors and executive board before landing on a number of 6.66% (happy Halloween, everyone!). Accepting more than the agreed amount would mean we had to release more equity. Release more equity, and you’re diluting the shares of existing investors - who believed in you before you had a business plan, let alone a crowdfunding video.

So if we met our strategic aims of crowdfunding, then protecting our existing shareholders’ positions at the amount agreed by closing the campaign at 100% was the best decision… right?

After much discussion, we decided that the campaign had served its purpose. Within hours of reaching 100% of our target, we made the announcement that we would not be overfunding. Over the weekend, we reached a full £500k of money in the bank and came to work on Monday expecting to close our campaign without taking any further investment.

3. What message will it send?

People kept investing. By Monday morning we had over 400 investors. We had said our primary aim was to engage the crowd - and here we were, preparing to turn hundreds of investors away.

It seemed we had two new choices.

  1. Stick to our £500k limit and turn hundreds of investors away
  2. Change our minds and overfund after all

Our Friday announcement that we would not be overfunding added a new complication. Did we really want people to get the impression that we’ll change our minds on such important matters based on popular opinion?

Actually… yes. That is exactly the impression we want people to have. And realising that did make things simpler.

‘Strong opinions, weakly held’ is one of our office mantras. We had good reasons for each of the decisions we made: initially to consider overfunding, then to decide against it. However, the voice of the customer is - and should always be - the most important voice to us. In light of hundreds of crowdfunding investors - many of whom we hope will be future customers - queueing up to be a part of Wrisk, we knew we had to reassess.

Wrisk will have been demonstrably customer-focused for years before we actually have paying customers. It’s why we have a community manager before we have a CMO. We plan to build a community of co-creators, who give us honest feedback on our work-in-progress proposition on the understanding it will be taken into account in our development process. This is our first opportunity to prove that we mean to take such feedback seriously.

To overfund or not to overfund?

We do still have obligations to our existing shareholders. As such, we have made the decision to overfund up to just £100k more - with a twist. Anyone who invested after we reached our £500k target will only be able to invest up to £1,000 each. We want as many people as possible to have a chance to invest in Wrisk, and this capped extension on our campaign seems to be the fairest way to do it. This decision brought our funding amount down from 142% to 117%, opening up just enough room for a few more new investors.

This will not affect most of the new investors we’ve attracted through crowdfunding. We hope those it does affect will understand and support our decision, which represents the customer-focused culture Wrisk is building. We appreciate this seems like an unusual decision… but that won’t surprise anyone who has been following us so far!

Whether or not overfunding is the right decision does not depend just on a company’s immediate financial needs. You can, as we did, make a high level plan for each outcome and prepare accordingly. However, it’s also important to be responsive to new information. We think our choice best supports our long term priorities and short term messaging - but we could not have predicted this outcome in advance.

Photo by Wrisk