Equity crowdfunding is a financing innovation which allows startups and growing companies to bypass banks and venture capital, and raise money directly from members of the public (or the “crowd”). The equity crowdfunding regulations have now been in force for over two years in the United States, with platforms like WeFunder and StartEngine leading the charge. Hundreds of millions of dollars have already been raised, and it shows no signs of slowing down.
Under Regulation Crowdfunding, companies can raise up to $1.07 million from ordinary investors in any 12-month period (an amount which increases annually, indexed to inflation). A huge variety of businesses have already taken advantage of this – from main street SMEs, to hot technology startups. This article has some of the best equity crowdfunding tips, borne of the experience of successful campaigns from all over the world.
1. Build your crowd first
The real secret to equity crowdfunding is building a crowd, in advance of actually needing to ask them for money. The best success rate for equity crowdfunding always comes from exisiting connections. So, the trick is to know who your potential investors are, and then appear there with an attractive offering to give them a low-touch introduction to what you are all about. Crowdbuilding starts with developing an investor avatar. Only once you have that, you can start to figure out where they tend to be.
Social media platforms are a great way to get people onto the first rung of the engagement ladder. Many crowdfunding campaigns make the mistake of only taking social media seriously once they are already very close to launching their offer – but by then it is too late. Social media is much more effective at building awareness of your company, rather trying to convert them into an investor immediately. They key with social media is to put out regular, consistent content, and use tagging and hashtags (depending on the platform) to increase your page’s reach to new people.
Media outreach is another way of crowdbuilding, far in advance of launching a campaign. The editor or content manager of the publication is the gatekeeper to the eyeballs you want to reach, so it is essential to create a pitch which is strongly informed by an understanding of what will be of interest to their readership or viewership. Make it as easy as possible for the editor to agree to your pitch. Also, make sure to be the best possible guest contributor, by creating something fresh and valuable, and sharing it across your social media channels once it is published.
2. Grow trust with your crowd over time
Just as it takes a while to build a romantic relationship between two people, the crowd’s connection to and trust with your company needs to be built gradually over time. E-mail newsletters are one low-touch way to do this. Someone who has been receiving (and reading) your high-value communications gets to learn about your company and its mission. These sorts of people are much more likely to invest.
Inviting your crowd to meet you is even better. If your business does something in the food and beverage space, maybe you can invite them along to sample some of your product for free. If your business does some kind of product design, perhaps your crowd would like to contribute your next release through hosting them at a whiteboard feedback session. Use your imagination, and always be looking for ways to involve your crowd in all that you do.
3. Reach out to cornerstone investors
A large investor can contribute as much money as hundreds of small investors. Although reaching out to the “crowd” realistically needs to be done through digital marketing efforts via the Internet (e-mail, social media, etc), it can definitely be worthwhile to make the effort to cultivate more direct relationships with large, “cornerstone” investors too – by networking your way to them the old-fashioned way. Find someone who knows someone, pick up the phone, and even go and meet them in person. Startup pitch evenings are held regularly in most cities with a vibrant entrepreneurial communities. Go there, and make your case.
4. Carefully choose the crowdfunding platform
There is a choice of equity crowdfunding platforms, and making the right decision over which one to use is absolutely vital. If your offer isn’t hosted on a platform where your target investors naturally gather, it will be far more difficult to get them on board.
– stage of company they prefer (seed, startup, scale-up, mature)
– investor user experience
– how much assistance they provide – success rate
– size of their investor base
There is a lot to consider here – so, a basic rule of thumb is to favor larger equity crowdfunding platforms, instead of the smaller ones. To determine this, look at how many offers they currently have live, and how much money they have successfully raised in the past.
You want to appear in the biggest, most-liquid marketplace that you can. Bigger platforms also tend to have more experience at knowing what really works for their audience, and more specialized team members at their disposal to help walk companies through the process.
5. Launch with momentum
Humans are social creatures, and investors look to the lead of other investors. The first thing that draws the eye whenever anyone visit a campaign page is the “progress bar” – the little indicator that shows how much money a company is seeking, how much they already have raised, and how far they have to go.
You will inevitably spend a long time preparing all the necessary pitch documents – a business plan, a financial model, legal disclosures… but the reality is that the progress bar is more important than all of them, when it comes to an investor’s willingness to give your campaign serious consideration. So, build up your existing crowd up to the “moment” of your launch by priming them with communications that will lead them to investing on your go-live date. This will give your progress bar the necessary boost to convince the crowdfunding platform’s audience that your offer is “hot” and worth investing in.
Learn from the collective experience of other companies and their crowdbuilding strategies. There is a well-worn process – first you decide who your crowd is, then you find them, build the connection, get social proof, and launch with plenty of momentum to drive attention and urgency to your campaign page. Follow these equity crowdfunding tips, step-by-step, and you stand a great chance of joining the throngs of startups and growing companies who have successfully raised money from the crowd.