Raising money for ideas and businesses through crowdfunding has become remarkably popular in the past several years. In 2014, an estimated $16.2 billion was raised through crowdfunding across the globe, a 167% increase from 2013. Traditionally, crowdfunding has rewarded financial donors with pre-release products and other exclusive access but now, thanks to recent legal changes, fundraisers can use crowdfunding to raise money in exchange for equity in the business.
You can listen to the full podcast here. If you aren’t able to hear it, here are a few things Dustin and Chance cover:
- How equity crowdfunding differs from perks-based crowdfunding; as well as the benefits of this model to entrepreneurs and investors alike
- The evolution of the JOBS Act; as an entrepreneur turned investor, Chance dedicated time and resources to helping pass the JOBS Act
- Which industries are well-suited for this type of fundraising, including a fun story about how Crowdfunder helped with Neil Young’s Pono
- The potential benefits of equity crowdfunding and the current legal landscape
- Chance’s 6-step equity crowdfunding campaign process to help maximize the possibility for success:
1) Build and communicate growth and traction
Clearly describe the metrics you use to measure success for your business and communicate how these metrics have changed over time. Many investors want to feel like they are investing in a business at the right time: when it is poised for growth, but before it becomes too expensive to invest in.
2) Build social currency around your business
Communicate to potential investors who referred you or who is endorsing your business. Ask great people you know with strong reputations why they believe in your company or the people involved in it. Ask for permission to communicate these testimonials publicly. If you don’t currently have a relationship with somebody that fits this profile, consider seeking out advisors that can give you feedback on the company and may open their network to your business.
3) Announce who your first or lead investor is
If you have an investor that has ponied up cash to serve as a lead investor and is willing to be mentioned as an investor in your round, this can be beneficial. Chance notes that this factor alone may drive initial interest in, attention to, and awareness of your campaign by 5-6 times. Equity crowdfunding, according to Chance, is not really the place to start looking for funding as much as it is a way to accelerate existing funding. Announcing your lead investor can help alleviate the perception of risk, as well as create a sense of “I have to get in on that,” depending on who your lead investor is.
4) Reach out to your network
After getting your first investor, keep in mind that you have a whole network of people you can reach out to, both through your investor’s network, if he or she is willing to share it, and your own personal network. You can use a platform like Crowdfunder to help tell your story and to serve as a place to send people in your network to invest. Tapping into your network can help build momentum while getting the message out about your campaign.
5) Celebrate momentum and success
Most investors want to be a part of a company that is successful and many investors have a wait-and-see strategy. When they see momentum and successes, this may motivate them to want to get involved. You may consider engaging or hiring a PR team to promote wins and positive occurrences for your company. Chance advises having a working level of familiarity with Title II of the JOBS Act to ensure that you are following the laws for public solicitation.
6) Take a victory lap
When you are at the point where fundraising is effectively done, consider approaching “moonshots” – people who would be amazing investors but who you may have had uncertainty approaching before the round. Let people know about your successes either publicly or privately to leverage momentum. You may be surprised by who you can get to invest when you ride the wave of momentum.
Joining Crowdfunder is free and open to everybody. You will find information, resources, and inspiration on the site, including templates and examples of pitch decks that may aid you in your round of equity crowdfunding.
We thank Chase for his time and insight and for sharing his love for “helping early stage entrepreneurs on their journey and their growth.”
Photo credit: Rocío Lara, Flickr