Explaining Transfluent’s crowdfunding “IPO”
Ever since Transfluent’s crowdfunding round was announced two weeks ago, there is one question I have been asked over and over again: Why crowdfunding? Why not VC funding?
Crowdfunding is a new thing and has evolved rapidly during its short existence, so I can see why many of you are confused. Some have never heard of it, while others may have heard the term only in relation to Kickstarter or something similar, where money is not actually invested but donated or used as pre-payment for a product.
What Transfluent is doing is different – we’re offering an equity-investment round. Indeed, everyone who puts money down will become an actual shareholder, with the same terms as our big institutional investors.
What's more, I believe this is the first time ever in Europe that everyone gets to invest on the same terms as large institutional funds. This round is lead by Vision+ and also joined by Avera, two major Finnish VC funds. We negotiated the terms of investment with these funds, and then extended the same terms to everyone else investing through the Invesdor platform.
So what is the difference between an IPO and crowdfunding?
In a way, this is an initial public offering, or IPO if you will. It is the first time the shares of our company are being offered for public to buy. But it is not an IPO in a traditional sense because our stock will not be listed for trading at any of the exchanges.
This means that even though you can easily buy shares, you will not be able to easily sell them until the company lists to a stock exchange or is sold to another company. The "real" IPOs like the one by Next Games in NASDAQ First North just recently make the stock available for trading at all times after the initial listing.
Trading volumes for small young companies tend to be small so even with a First North listing you may not be able to sell your Next Games shares as quickly as you want, but at least you have a marketplace where shares can be traded. This will not be the case with Transfluent shares.
The pros and cons of public offering
Then why did we choose a public offering rather than a closed investment round directed at selected venture capital firms? One of the most interesting aspects of the public option is the large number of shareholders. Rather than being a company with a handful of owners, Transfluent is becoming a company with hundreds.
In a way, this makes us “everyone’s translation company.” In an ideal world, every prospective customer would know someone with a cousin who has invested in Transfluent. All things being equal, they would be more likely to choose us over a competitor.
Another big difference is control – having one investor control a large number of shares vs. having a lot of investors control those shares. Having a lot of investors means the founders have more control over the vision and can keep building the company with less potential distraction from the investors.
The burden, of course, is that we must be fully transparent about everything. We’re disclosing all financial information and all our plans and company details. We are not scrutinized quite the same way as listed companies, but still we need to be careful to treat all prospective investors equally. We cannot disclose new information about the company to any one investor – whatever we reveal has to be made public. It’s not a heavy burden, but it means we need to be quite careful about what we say. Good practice for a public listing, should we want to do that later on!
Either way, it's a lot of work
Raising money from VC funds is quite tedious. You need to meet around 50-100 investors before you find one that is a mutual match. It takes around six months from start to finish, and during this time much of CEO's time is spent on fundraising related activities. It's very easy to lose focus and stall the company's growth during this time.
Crowdfunding is no less laborious, but the upside is that much of the effort is public. While the VC rounds happen in secrecy and everything is confidential, the public offerings are the complete opposite. Much of the work I have to do in order to put this funding together ends up being publicly distributed. I have created presentations, given interviews, attended events, answered a ton of questions in the Invesdor forum. All of these actions double as PR work, so rather than stall the growth, I am actually helping boost our growth.
We are now two weeks in, with five weeks remaining. As of this writing, we are at 65% of our target, and there has been a lot of positive publicity. We have already gained new customers who heard about us because of the fundraising. So far, I must say, this seems to have been a good decision!
I think going forward you will see more startups going this way with their funding needs. Crowdfunding certainly is not for everyone, but neither is VC funding, so having a whole new way of funding innovation is huge!
The round is open until May 31, 2017, but there is always a chance we sell out and close early. In order to secure your share of the world's most innovative translation company, proceed here and make an investment now: www.invesdor.com/transfluent. The minimum investment is only 480 eur.