Essential crowdfunding rules for entrepreneurs

Historically, entrepreneurs have tended to steer towards private equity and venture capital investors when in need of finance. However, research suggests traditional sources of investment sometimes struggle to keep up with the requirements of modern businesses, leading to the emergence of alternative methods of funding.

Although the concept of crowdfunding goes back farther than one might expect, it has really taken off in recent years. During this time, the “crowds” doing all the funding have simply been individuals whose generosity is compelled by a particular idea or cause, and who get a sense of satisfaction having done their bit to support the ambitions and potential of others.

But crowdfunding experts say a turning point is occurring, and that institutional money is now entering the platform. This could be key to redefining investment in businesses.

Gaining momentum

The two most prominent crowdfunding platforms invested in more than 250 companies last year, attracting over 45,000 investments. This growth is set to be supported by funding from larger parties. CEO of Seedrs Jeff Lynn said: “We are seeing the first exits from investments made at the beginning of the equity crowdfunding era. Where we are today is roughly where peer-to-peer lending was when institutional investors first entered that space.”

The introduction of institutional finance is no coincidence, and has a lot to do with the possibilities the online platform has brought about in contrast to traditional investment pursuits. Previously, applications for finance from banks or venture capitalists was a lengthy venture that requiredextensive paperwork, references and processing, relying heavily on numbers and established success.

Entrepreneurs also had a limited choice of investors, usually consisting of whoever was local and willing, with little opportunity to look further afield for those more passionate or experienced in their particular industry.

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The six key principles of angel investment

In 2017, the G20 leaders claimed angel investment should be considered a necessity in stabilising the world’s economies, but there is currently a shortage of suitable investors.

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Crowdfunding allows users to make donations of any amount quickly and safely, based on the appeals constructed by entrepreneurs. Here, personality, USP and creativity are of more relevance than what the company has already achieved, or what return will be seen out of an investment.

Angel investors are characterised by their passion for supporting entrepreneurs, and investments are often influenced by their emotional side. This makes crowdfunding and angel investment compatible partners.

Crowdfunding rules to follow

Typically, less than one-third of crowdfunding campaigns meet their goals, so it is important to put a lot of thought and preparation into a campaign. Here are a few crowdfunding rules to work by to get the most out of a campaign, and drive its chances of success.

(1) Tell a story

This is one of the most important crowdfunding rules. As people are the ones being invested in, it is important to construct a compelling narrative that you continue from the beginning, through investment, and to aftermath. Stories should include eye-catching visuals, videos plenty of content. Once your campaign is up and running, aim to publish at least ten posts a day across the various social media platforms.

(2) Connectivity – presence is essential

Campaigns should have well-designed and up-to-date accounts on Facebook, Twitter and Instagram, and should post original content frequently to each of them. When the campaign starts, make sure to respond to every message that is received quickly, and show consistent online presence.

(2) Promote

Such is the prominence of crowdfunding that there are now companies who specialise in crowdfund promotion. Their services can fill in the gaps and maximise the reach of a campaign. Meanwhile, all social media accounts should receive thorough attention on a daily basis in order to raise awareness of the campaign.

(7) Website

Chief among the crowdfunding rules is that before your campaign is even launched, your website should be created. It will be the hub of all crowdfunding activity. The website will warm up prospective investors and create a buzz about the upcoming campaign, and will be the centre of online presence.

Learn more about mastering the world of angel investment at the World Business Angel Investment Forum Annual Conference 2018, taking place on the 18th-20th February2018 in Istanbul.

Baybars Altuntas is chairman of the World Business Angel Investment Forum

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