The content of this article has been adapted from Equity Crowdfunding: The Complete Guide For Startups And Growing Companies, launching on Amazon on November 1. Eureeca subscribers can download the entire book for FREE, this week only. Click here to download.
Although equity crowdfunding has now grown to be worth around US$2 billion, and is roughly doubling in size year-on-year, the phenomenon is still viewed by many in terms of isolated countries, rather than in global terms.
This is unfortunate, because campaigns from around the world have much to learn from each other.
Throughout 2016, I have travelled around the world to understand the equity crowdfunding landscape, and seek out the most critical lessons others can use. The main thing I learned from speaking with 20 successful crowdfunders, 12 leading platforms and some of the world’s leading experts is that despite the differences in securities regulation that exist in each jurisdiction, equity crowdfunding campaigns from different parts of the world have far more that unites them than divides them.
Whatever the country, momentum matters to get investors interested. Whatever the country, the fundamental rules of investing still apply. And whatever the country, pulling off a successful campaign can have a transformational impact on a business.
What follows are the most critical 7 steps any aspiring campaign should go through.
Step 1: Get clarity on ‘why equity crowdfunding’
Just because equity crowdfunding is the new game in town doesn’t mean it is the best way to raise money for every business. You need to compare it with a range of other funding options — in particular, with rewards crowdfunding, and with traditional angel / VC funding, which are equity crowdfunding’s closest cousins.
Various campaigns surveyed in the course of putting this book together said the founder needed to devote anywhere from 20 hours a week, to over 40 hours a week, for anywhere between two and six months. Yes, you read that correctly — running an equity crowdfunding campaign can be a full-time job.
Having said that, the benefits of equity crowdfunding are considerable. Chiefly, it allows startups and growing companies to do two of the things that often occupy the top of their to-do list: gaining marketing exposure and raising external funding… and to do so at the same time. This is a game-changer.
Step 2: Choose your platform carefully
Choosing the right crowdfunding platform is as important to a successful offer as the choice of where to open a shop front. Location, location, location. If you are not promoting your offer where your potential investors naturally congregate, it will be much, much harder to attract those that you need.
The choice of platforms can seem overwhelming, but there is no better use of your energy than getting the platform decision right up front. The amount of variation within the industry necessitates taking the time and effort to understand the different options, and making an informed choice. Everything that happens in your offer will, to a large extent, flow from which platform you have by your side.
Remember when you’re evaluating all the choices against one another, you need to find the one that gives you the most confidence in their ability to get the job done.
Step 3: Make a compelling case to the platform and investors
Once you’ve chosen your preferred platform, you need to get your preferred platform to choose you too! They are looking for companies with strong traction, and a large, engaged existing network they can leverage.
The best way to come across as an amazing company in a pitch is, rather obviously, to be an amazing company – one which has both the big idea and has already made significant progress towards turning it into a reality.
Before an equity crowdfunding offer can go live, the founders will need to convince the platform that they are worthy, and this commercial screening process surprises a lot of entrepreneurs. Anyone can launch a campaign on Kickstarter, but the selection process in equity crowdfunding is much more stringent.
Get a strong understanding of what a platform is looking for. This will help you to hone your pitch, and highlight the right things about your company.
Step 4: Take the time to prepare properly
As you have heard already, the process is time-intensive. To do it properly, your campaign will need to be your primary focus. Don’t make the mistake of splitting your focus with other major business events, such as a new product launch.
A well-structured campaign needs at least three months between decision being made to go ahead, and money arriving in your bank account. It could even be longer – some campaigns I spoke to said it took up to six months.
A smart company founder will choose to postpone or cancel their offer rather than launch it before they are ready. The very process of going through the steps required to launch has convinced many founders that they weren’t as ready to raise funds as they thought they were.
You should also be spending time in the preparation phase speaking to potential lead investors and getting them to commit to your offer. These are well-versed, experienced investors who spend the time conducting due diligence on a company, and then invest a large amount in an equity crowdfunding campaign. That initial money also gives momentum to the offer, and confidence to those who follow.
Step 5: Form a strong marketing plan
There are several marketing strategies to employ to connect to your crowd. If you can combine several of them at once, there will be no stopping you. These include leveraging your personal networks, your email list, offering a reward for your investors, creating a compelling video, in-person pitch evenings, mainstream media and social media.
Different things work best for different campaigns, and what works best can be unexpected. Rather than try to second-guess which ones will work well for you, it is far better to use every weapon at your disposal. What you don’t want at the end of your offer is regret – don’t let yourself utter the words ‘if only I had done this, maybe the offer would have succeeded.’
The electronic channels such as email and social media are more effective if your aim is to raise small amounts from lots of investors. In-person channels like events and meetings will support businesses which can command large amounts from angel investors.
Step 6: Support the campaign properly while it is live
There are two main things you will need to do during the offer period: provide frequent campaign updates, and answer the questions posed to you in the forum.
When it comes to updates, the best emotions to inspire are urgency and scarcity. One way to do this is to provide frequent updates that show your rapid progress towards your target. When your campaign hits 25% complete, 50% complete, 75% complete and heads into overfunding are good points at which to update your crowd to show off how well your offer is going, and why they need to invest now, lest they miss out.
Another great way to update your crowd is to release positive news related to your business, which builds on your pitch. Announce new clients, new hires, new stores – anything to show that your company is not sitting still during the offer. It also gives you something to say when you’re blasting out all these messages, beyond the banal “check out our company and invest!” You can get these news releases ready pre-launch.
The question and answer forum is underestimated by many. This is the part of your campaign where anyone can ask the founders a question, and where everyone can view both the question and the founder’s reply. It is crucial to answer questions as quickly as possible. If the founders aren’t on top of the forum, it can damage the offer. Investors will be wondering why their questions are taking so long to be answered. Is the company hiding something? Or are those in charge just too lazy to bother replying? Both are bad.
The most important times for your offer will be the first week and the last week, as history shows that this is when the bulk of the money will arrive. You definitely want to avoid having these critical periods of your offer overlap with any major holidays.
Step 7: Keep your new shareholders engaged afterwards
If you have succeeded, congratulations! Take a moment to celebrate.
But soon you will need to get back to work. You have made a lot of very big promises to a lot of people, and they have trusted you with their money. A weighty responsibility now rests upon your shoulders. You have got to use their capital to do what you said you were going to do.
Investor updates should take place at least every 3 months. You should also send a longer, annual update, in line with the end of the financial year. These investor updates should include an update on business performance, staff movements, and commentary on how you are tracking against the plans you outlined at the time of your crowdfunding offer.
Remember those projections you made in your financial model? Now you have got to do your best to deliver on them. You will have made statements saying that by a certain future date, you expected to grow revenue to a certain level. Well, pretty soon that date is going to roll around and your new investors are going to be wondering whether you achieved it or not.
If you have done a good job with your first equity crowdfunding raise, you can leverage this if you want to do a second raise. But it requires you to have shown respect to your shareholders from your first offer.
Many of the companies I spoke to gushed about the very real surge their business has had as a result. Several were of the opinion that the exposure they got was even more valuable and useful than the money they raised.
I am personally very excited about the potential for equity crowdfunding, and I hope you are too. When we encourage people to explore direct ownership in private companies, we will get citizens with greater levels of financial education, taking responsibility for themselves. It will also supercharge the entrepreneurial economy.
If you choose to join the equity crowdfunding revolution, I wish you many happy returns.
If you enjoyed this article, you can read a comprehensive overview of equity crowdfunding by downloading Nathan Rose’s new book, FREE on Amazon for this week only, featuring even more insights from Eureeca and many other platforms from around the world. Click here to get your copy.