Dispelling the myths of crowdinvesting for entrepreneurs

Posted by The Eureeca Team on Jul 28, 2013 9:03:00 AM

Let me fill you in on a little secret: I didn’t come from a banking or financial background before I joined Eureeca. I had an idea what crowdinvesting and equity crowdfunding was but boy, was it riddled with a lot of misconceptions.

It’s understandable that there are a lot of myths that surround crowdfunding, let alone crowdinvesting. I mean, just two years ago if you said you were going to raise money from a crowd in this region, people must have thought you were crazy. What does that even mean? Let me explain it in one sentence here – crowdfunding put simply is when a pool of people come together to contribute towards funding a specific project,or business, in exchange for gratitude, donations, reward or, in our case, equity.

Think of all those times you and your friends came together to put in smaller amounts of money to get a friend a large gift. Rather than one person buy a $2000 laptop you can get 10 friends to put in $200 and chip in – that’s crowdfunding in its most basic form!

So I thought, given that I had many of these misconceptions, why not put them down in a blog post about some of the most common questions I've received about crowdinvestment:

Misconception 1: You are a crowdfunding platform like Kickstarter or Indiegogo for MENA

 

Pic credit: Business Pundit

The concept of crowdfunding is everywhere and has made famous by companies like Kickstarter and Indiegogo. However Eureeca is different in one major way: we are focused on crowdinvesting or better known as equity crowdfunding.

Crowdfunding (Kickstarter, Indiegogo or regionally Aflamnah and Zoomal), is typically focused on funding for a project or idea where investors receive a reward for their investment.

Crowdinvesting (Eureeca) is where existing businesses raise money from a crowd of investors in exchange for equity (shares). Businesses looking to raise money to expand have a fan base who want to see them grow and scale. Eureeca just connects the dots between the businesses and their fans.

Misconception 2: It looks desperate that I need money

Pic credit: Shutterstock

Having been born and bred in this part of the world I am acutely aware of the challenges that come with image, persona and what people can think or say about you or your business. But in order for any of us to grow, succeed and continue to compete we need to wash away any of these sentiments.

Let’s flip this misconception on its head – if you are growing your business what do you need? Money! And when you are growing it means you are successful, not desperate.  You will always have to raise money externally from a number of places including venture capitalists and angel investors. What crowdinvesting allows you to do is now have the people that believe in you most share in your success – what other way to actually give your fans and friends who supported you a piece of your success on your terms?

Misconception 3: I will look like a failure to future investors if I don't reach my funding target

Pic credit: Flickr

Failure is a loaded and relative word. I don’t want to get into some existential philosophical discussion on what constitutes failure as it’s quite different for everyone. However, by mere fact that you started a business or are successful in your career means that you took risks and that you had courage. In fact, all successful entrepreneurs truly embody courage as a key trait.

So yes, although there is a chance that you may not reach your funding goal, there is a lot more to gain in terms of leveraging your campaign to raise awareness about your business. You get valuable feedback from the crowd and it might give you an opportunity to examine your model to suit your favourite customers’ needs. It’s tough and takes courage (that word again) to put yourself out there but that’s what success is made of.

With the web bringing people and communities closer, entrepreneurs are now more transparent about their businesses. Rather than treating this as a threat, we see many companies using this as an opportunity to improve their businesses strategies by putting it out to the crowd. The interaction and experience of having the business validated by the crowd is invaluable for entrepreneurs regardless of them reaching their funding target.

Misconception 4: I need too much money, I need too little

Pic credit: Gualberto107

There are no limits to how much money you need to raise or how little, we just recommend you don't follow this method to get money. That’s the beauty of crowdinvesting. You can choose to raise the bulk of your funds offline and save a portion to raise from the crowd because your network has been a crucial part of your success and you want to share that success with them. Or you could choose to raise a bridge round to test your capacity to raise funds from the crowd. You could also choose to raise all your money through crowdinvesting because you have a super star campaign. This time you call the shots.

Misconception 5: A funding campaign would reveal too much about my business

Pic credit: perdana.org.my

A business is the product of many years of planning, building and executing a strategy based around an idea. This is not something that can be stolen. The true success of any business is the team and management who runs it, pumps energy into it and drives the business to growth.

However it is up to you to decide how much, or how little information you share with the crowd. You don’t need to share your secret sauce – most investors don’t need it. They need enough to assess your business and the investment opportunity. No more, no less.