Equity crowdfunding is a great way to raise capital for an early stage business, but it needs to be done properly. As the chief marketing officer of Seedrs, I spend a lot of time speaking with entrepreneurs who are trying to raise capital and Ive seen them make all sorts of avoidable mistakes.
While picking the right crowdfunding platform is obviously important, it is also essential to approach your crowdfunding campaign in a well thought out, structured way in order to maximise your chances of success.
There are a few key things worth getting sorted before you create your campaign:
1. Do you have your team in place
The team is one of the first and most important factors that investors consider when reviewing a campaign. Lots of investors will only invest in startups that have more than one person listed on their campaign because it makes the company look more credible, especially if team members can point to relevant experiences and successes.
2. Have you done everything that you can do without money
Investors will want to see that you have been resourceful and proactive about testing your idea. For example, have you shown that you have researched the market, identified potential competitors and demonstrated that you understand customer behaviour before you came looking for external funding
3. Do you have a marketing strategy in place to promote your campaign to investors
Promoting your campaign to investors involves a mix of personal outreach, online promotion and PR. The primary target of these activities should be people who already know your business and want to be a part of it by becoming a shareholder and sharing in your success.
4. Have you talked to your own network of customers, friends, family and professional contacts to assess their willingness to invest
Your immediate personal and professional networks are your most important source of support, advocacy and investment. Once theyve listed on a crowdfunding site, too many entrepreneurs assume that the crowd will miraculously fall in love with their idea without them having to do much more work.
5. Will you be able to create a compelling video to support your campaign
Some founders are uncomfortable on video or want to hold back information about their business. Crowdfunding works best when you can tell a real and honest story, both on a sharable campaign video and in your written communications.
Its also crucial to be aware that there is no such thing as the crowd in the sense of an anonymous blob thats out there waiting on tenterhooks to invest in startups.
Every investor in an equity crowdfunding round is an individual who has made the decision to back you because something about your campaign resonated with them personally. Early momentum is often only achievable in crowdfunding if you first convince your own network to back you and then bring them to the platform.
If your business is ready to raise capital from the crowd, then begin talking to the potential platforms that you might use and make sure that your values and requirements are in sync.
For example, one of the most misunderstood, but important parts of our business is the nominee structure. The nominee structure is designed to take care of the back-office investment details so that the entrepreneur can focus on getting out there to connect with their investors.
You should also ask platforms about their fees, the help they will give you and how you will manage the crowd once the round is complete.
As Hunter S. Thompson said, Anything worth doing is worth doing right.
Peter Thomson is the chief marketing officer of Seedrs.