Giant networks are connecting people and businesses in ways never before imagined. On top of that is another $200 billion—the money invested each year by more experienced professional and institutional investors (like angels, VCs and banks).
Money is everywhere, waiting and wanting to be deployed—it’s really just a question of understanding this new landscape.
The State of Equity Crowdfunding
Both in the US and around the world, the crowdfunding industry is growing rapidly—but this acceleration is about to go exponential as the newest addition to the industry, equity crowdfunding, comes online.
For this to make sense, a little history is helpful. A campaign should be long enough to realistically achieve its goals, but not so long that it drags to a standstill. Online fundraising isn’t a replacement for offline fundraising—it’s the perfect complement.
Key #2: Follow The Leader
Investors trust other investors more than they trust entrepreneurs. For good fundraising, timing can either make or break you. This brain cares about the story of the business, the larger context. This is the blueprint. By early 2011, rewards-based crowdfunding (think Kickstarter) had become a $1.2 billion dollar market. But, truthfully, to get it right, you still need to hire a trustworthy lawyer.
The Anatomy of a Successful Campaign
Crowdfunding campaigns are won or lost before they ever launch. Many are uncomfortable asking for money, many more don’t believe they’ll get it even if they do ask.
But the truth is, money is abundant today. This has changed the dynamics of direct fundraising efforts inside the board room. The Current State of Business Crowdfunding
Don’t Bury Your Lead: Modesty is a great value, perhaps not in fundraising. This means learning how to be both a literary and a visual storyteller.
Timing Is Everything: Think carefully about the length of your campaign. In the US, there is $30 trillion sitting in long-term savings alone —and that’s just the “friends and families” accounts of everyday folks who might want to invest in your company. It’s social proof.
Data collected at Crowdfunder.com—about the companies raising money on the site— shows that when a startup has a credible or notable lead investor it brings roughly five times the amount of engagement and follow-on investment to the deal.
Of course, finding a notable or lead investor doesn’t happen overnight. Remember, it ain’t bragging if it’s true.
Your Online Pitch: With crowdfunding, you get to use rich media to craft your pitch—including image, text, and video. Here’s how to play.
The Five Keys to Fundraising
Key #1: Integrate Offline and Online Efforts
It’s only been a year since equity crowdfunding became legal—but it’s already changing the fundraising landscape. As an example, Neil Young raised equity for his PonoMusic venture on Crowdfunder, on the heels of a successful Kickstarter campaign that pre-sold his Pono music player.
Trending: One of your goals in crowdfunding is to drive enough engagement, attention, and initial funding so that platforms take notice. For this same reason, strategically-minded founders often push the launch of their campaign until they have anywhere from 5 to10 percent of their funding in place. It means spending the time to build a real relationship. Without question, we are living through a golden age of early-stage entrepreneurship.
How We Think About Money
Today’s entrepreneurs have more options and tools available to them than at any other time in history. Often, entrepreneurs need to close their larger investors two to three times, even after getting a verbal commitment. These break down the different equity and debt offerings, explain how they work, and provide clear examples and documents to guide you. We went from eighty years of financial regulation that prohibited small business from talking publicly about their fundraising efforts, and excluded lower-net worth citizens from investment opportunities, to a radically new kind of market.
The JOBS Act paved the way for everyday citizens to invest in early-stage private companies alongside professional (aka wealthier) investors. It’s what ignites investor passion.
All successful fundraising efforts, even those presented online, must tell a powerful and compelling story to the investor, while walking them through the rational parts of the business. Great campaigns are funded by great engagement—this is what turns attention into dollars.
Get ‘First Money’ or Lead Investors: As we pointed out earlier, having a lead investor is key. When it comes to telling your story, let it all hang out. As such, who else is investing in a startup is one of the more powerful signals you can send. Because there’s never been an easier time to raise capital.
Right now, because of overlapping developments in three key arenas— economy, technology, and policy—a powerful wave of opportunity is cresting, and an entrepreneur in the know can go for quite a ride.
For starters, the economy is changing—and entrepreneurs are to blame. Why? Because investment terms, company valuation, and longer-term implications are not “one size fits all.” In other words, what you want to offer investors depends on what kind of company you are.
Therefore, at the Crowdfunder Knowledge Center you’ll also find our Term Sheet resources. Remember that $30 trillion stashed away in personal savings and investment accounts? If just one percent of that money shifted to startup investments, the $300 billion market it would create would be ten times greater than the current $30 billion venture capital industry.
Right now, we’re waiting for the SEC to implement Title III. Many times entrepreneurs hide the fact that they already have an influential advisor or investor involved. With crowdfunding, even though the financial commitments or transactions can be made online, if you don’t follow up with all leads quickly, you’ll likely leave a lot of money on the table. Plus, no one wants to be first money in—and having a lead circumvents this problem before it arises. Set goals, achieve goals, repeat.
Terms: What To Offer Investors
Two of the most common questions heard from entrepreneurs are: What do investors want to see in a pitch deck? And what terms should I offer investors?
The first question is easy to answer since the folks at Crowdfunder have already done the heavy lifting for you—creating the Ultimate Pitch Deck for Fundraising. But the idea that participants in these campaigns might also have the opportunity to become owners of the companies they were supporting—that is, what equity crowdfunding allows—was a distant reality.
Things have changed. If you simply tell an investor what you’re going to get done over the next three months, then update them each month with news of real progress, you will immediately stand out from eighty percent of the other entrepreneurs vying for their attention. We recognize this brain when it questions our sales projections and financial assumptions.Market for Business Crowdfunding
Inexperienced fundraisers often spend all their time trying to convince the rational brain to invest. 3 Models of Crowdfunding
With this ruling, the power of mass communication and social media was unleashed on private fundraising.
But, while Title II allows general solicitation, there is still the restriction that says all participating investors must be accredited—meaning they earned over $200,000 over the last two years, or have over $1 million in net worth outside of their primary residence. When Crowdfunder surveyed potential investors about their willingness to take risk, they found that investments below $10,000 shifted the whole equation. In other words, pitch to both brains.
Key #4: Lower Investment Minimum, Raise Funding Conversion
Something exciting happens when the minimum requirement for investing in a startup falls from where it used to be– say $50,000 or $100,000 – to where it is today: $5,000.
When this happens, both the real and perceived exposure for any single investor changes dramatically. It also includes examples of great pitches that raised millions (including the deck used by LinkedIn founder Reid Hoffman). Success begets success.
The Art of Closing: Just because an investor says yes, doesn’t mean their money is going to instantly appear in your bank account. It’s an important way to attract new investors. Outline
How We Think About Money
The State of Equity Crowdfunding
Transforming Social Capital into Investment Capital
The 5 Keys of Fundraising Strategy
Terms: What To Offer Investors
The Anatomy of a Successful Campaign
There’s never been a better time to be an entrepreneur. At Crowdfunder, we’ve found a 45 to 60 day window works best for equity campaigns.
Equity, with Rewards: Crowdfunder pioneered a hybrid model of crowdfunding that blends equity and reward campaigns. The huge market potential you see for your company and the unique approach you’re going to take to serving customers (and thus win the market) is what activates this second brain. If, fifteen years ago, I told you that people you’ve never met would be so excited by your business idea that it would be possible to raise six and seven figure amounts from them—well, you would have thought I was crazy. But there is more to the story.
The second brain is non-rational. In late 2011, the JOBS Act, the first equity crowdfunding bill, was introduced into the House of Representatives. Strategy makes all the difference. By transforming our ideas about how money is used, shared, and invested, it’s changed the game.
Equity crowdfunding is the next frontier. Yet, in spite of this, far too many struggle with finance and fundraising. Neither is posting a project on a crowdfunding site. In the meantime, platforms like Crowdfunder let accredited investors hunt for new opportunities online.
Transforming Social Capital into Financial Capital
For the first time in history, influence on the web is being transformed into financial capital. This is the part of each investor that deals with dollars and cents. It means becoming what GRP Partners and Upfront Ventures VC Mark Suster calls “a line, and not a dot” in the mind of a potential investor.
To do that means showing up regularly in their office and in their inbox with progress updates. It took a little while to work its way through Congress, but when it passed, in September of 2013, the SEC then lifted the longtime ban on general solicitation—that is, talking publicly about funding for a private company. Why? Simple. Consider that in 2000, it cost about $1 million to start a company. Thanks to new legislation, early-stage finance is being radically disrupted. As a result, startups and small businesses now account for over 50 percent of the GDP and investors are considering opportunities that were completely off the radar just a decade back.How Equity Crowdfunding Works
Technology, our next category, has also changed entrepreneurial possibility. It’s that easy and it’s worth the effort.
The social proof a lead or notable investor lends to your project will do wonders for your fundraising.
Key #3: Leverage The Power of Story
Startups and entrepreneurs who excel at fundraising aren’t just the ones with the best traction or the most experienced management team—they’re often great storytellers.
Every investor has two brains. In April of 2012, it was signed into law by President Obama.
This new legislation was a revolutionary departure. It tells you exactly which slides to include in your pitch and explains how to craft the overall narrative. The reality of getting investors to pony up is far different. Rewards platforms like Kickstarter and equity platforms like Crowdfunder have premium placement on their sites for new, notable, and trending campaigns. Today, it’s below $5000. Won’t it be a ton of work for a startup to manage a crowd of investors? Turns out, no. Fast forward to 2015, when who we are has become a fundamental component of online life. It was a great innovation, allowing people to pre-purchase products and experiences as a way of helping fund a company or project they were excited about. Truthfully, the more, the better. Over the next year, it’s not entirely ridiculous to think that raising startup capital online will become the “new normal.” Meaning, if you’re an entrepreneur and you’re not taking advantage of these developments, you’re missing out on a huge opportunity.
What’s more, smart entrepreneurs are finding that their online fundraising efforts help accelerate their offline efforts. As of today, this restriction still bars everyday citizens from participating in equity crowdfunding.
It’s these everyday citizens that Title III of the JOBS Act aims to bring into the market—an influx with the potential to skyrocket crowdfunding. And you need to engage, stimulate, and satisfy both. The technical term for this is reputation economics, but what it really means is that your digital identity is worth far more than ever before.
Think about it this way. Below that number, investors no longer required months of relationship building and due diligence. Here are some of the most critical tactics:
Campaigns Never Fund Themselves: A great idea and a sexy deck are not enough. The first brain is the quantitative brain. This Pitch Deck is available for free download at the Crowdfunder Knowledge Center: Crowdfunder.com/Learn.
The second question is more complicated. Plus, investors putting in $5,000 or $10,000 generally don’t feel the kind of urgency you might like and it might take several nudges to get their money in. Instead, they were far more likely to take a flyer on an interesting opportunity.
Of course, this raises a management problem. Thanks to Facebook, LinkedIn, and all the rest, we have come to trust our digital identity—and this new trust is fueling a massive uptick in collaborative and cooperative opportunities.
Policy, our final category, is now starting to catch up to the changes wrought by these economic and technological developments. We’re moving towards a world where an investment-ready company has the ability to reach several thousand potential backers in a single day. It’s the emotional brain. Consider, in the earlier days of the Internet, we often opted for anonymity, hiding behind screen names, user handles and such. The validation they provide will instantly draw other investors to the table. Equity crowdfunding solves this problem by aggregating these smaller ticket investors into a single entity or mini “fund” that is easy to manage.
This combination allows startups to lower their minimum investment amount and enables them to take funding from a larger pool of potential investors.
Key #5: When In Doubt, Execute
What do investors value above all else? Execution. Its goal was to drive job growth and create increased access to capital for small businesses. Investors like movement and momentum. But this is exactly what the crowdfunding revolution has done. Really strategically-minded fundraisers have 25 percent. By 2020, the JOBS Act—and the equity crowdfunding opportunities it unlocks—will create $50 billion of available capital.