Equity crowdfunding is growing as a legit funding option for entrepreneurs. Don’t believe me? Recently, Legion M, a fan-owned entertainment studio raised a record $1 million on WeFunder from 1,000+ investors.
Many startups and ecommerce businesses are taking advantage of the benefits that online crowdfunding has to offer, even making it their first choice over traditional methods. However, launching an equity crowdfunding campaign can be a bit trickier than launching on a rewards-based crowdfunding platform, like Indiegogo or Kickstarter.
For one, the risk for investors is higher, and usually, so is the amount they are investing. When it comes to equity deals your investors will be expecting a future payout, not just the first version of the product. For this reason you may have to do some extra work to put together a convincing pitch and promote your project.
In fact, the Wallstreet Journal recently wrote an article detailing how many of the initial equity crowdfunding raises have been disappointing. Quite frankly, I think many companies underestimate the high degree of marketing that goes into wooing and educating investors.
Still, equity crowdfunding has many benefits. “Equity crowdfunding brings both the capital and the crowd but along with that potential huge upsides,” explains Sang Lee, CEO and Founder of Return on Change, “Investors are not only your funders, but also marketers and potential consumers. An increasingly powerful and sustainable model, it’s something that startups should definitely look toward.”
Given all the confusion, we decided to put together a few essential tips for putting together a killer equity crowdfunding campaign. Hope it helps!
1. Value your company accurately
Jumping into the fundraising arena for your startup is no different than entering into any other marketplace. There are buyers and sellers.
You are a seller. The buyer, or investor, must know how much the asset that you are selling costs. In order to communicate that, you have to figure out what your company is worth at the current stage.
Your valuation is going to take many metrics into account, including your revenue, user growth, technical abilities, target market, and overall traction. I’d recommend reading through this basic article on how to value your startup. Once you skim it, go and check out this more comprehensive tutorial that outlines various methods to value a company. Finally, this article written by Mark Suster will also give you an idea of the current funding climate.
Having a great idea isn’t enough to get investors excited about your project. You need to cope with the realities of supply and demand for your company’s shares. Investors aren’t giving you free money. They’re purchasing an asset at an appropriate price and with a certain amount of risk regarding the asset’s ability to produce future cash flows.
If you have access to mentors that you plan to invite to join your board of directors or to bring on officially as an advisor, I’d highly recommend consulting them in this stage.
2. View your campaign page as a sales page
A “sales page” or “landing page” is marketing jargon for a page that influences a visitor to take a pre-determined action. That action could be to buy your product, subscribe for future updates, or attend an event. This is labeled as a “conversion.”
I know that this sounds basic, but actually it’s really important. The biggest factors that are going to affect your conversions, and therefore equity crowdfunding success, are the type of traffic you drive to the campaign page and the layout or makeup of that campaign page.
Every piece of content on that campaign page, whether it’s text, video, or photos is designed to influence the visitor to take action.
While yes, your page will be informative, it should also be focused on selling your company to investors (even if you don’t admit that).
This means that you need to learn about:
- Making a great-sounding video pitch
- Use video-enhancing techniques like these
- The fundamentals of copywriting
- How to make great images (ideally make or take your own)
- The basics of influencing others
Every piece of content is going to not just introduce investors to your company, but also to you and your brand. Presenting your pitch is a unique opportunity to give visitors a chance to “get a feel for you” and what you’re all about.
3. Build your network and following BEFORE you launch
I can’t stress how important this is. You need to bring the crowd to your equity crowdfunding campaign.
You should have:
- Active social media profiles
- Consistent content marketing
- A responsive email list
- Direct relationships with your core tribe.
Just because you think you have “an amazing investment opportunity” or “the next Facebook,” doesn’t mean that other people see your vision as clearly.
Your job as an entrepreneur is to communicate your vision to the world, get buy in, and persuade the hearts and minds of people in your community.
Along with building up your own following, which can consist of customers, supporters, advisors, and investors, you should also be identifying other people who have followings that you can access.
To give you an example, the Elio Motors campaign, which raised $17 million in funding on StartEngine, was very active about getting their story into the media. They reached out to YouTubers and influencers and worked to access new pools of investors.
Make sure that you are connected via phone, email and on social media. Keep your followers up-to-date with your progress. Celebrate milestones. Share news. Get them to participate in the upcoming campaign! Having an initial surge of investors at the beginning of a project encourages others to invest.
4. Put together a strong story and marketing strategy
This point is true of any crowdfunding campaign, but equity ones especially.
Sal wrote an extensive article about some of the secrets that all successful crowdfunding campaigns employ. Sal also did a podcast version if you’re more of an auditory learner.
You’re going want to copy some of these strategies as you go about putting together your marketing efforts. Most marketing campaigns will include:
- Storytelling
- PR outreach
- Paid advertising
- Content marketing (inbound marketing)
- Press releases
Of course, you should include your company’s logo, a tagline, location, links to your social media and website, a company profile, press, testimonials and more. Pages missing important elements may lose investors’ interest because they lack the information they need to make an informed decision.
5. Hire professionals if you need help
Don’t be afraid to get some help if you need it! Startups can’t always spend extra money hiring help, but equity crowdfunding campaigns often require some accounting and legal expertise. If you are a little fuzzy in these areas, outsource that work if you can to make sure that everything runs smoothly.
I think that we’re going to see more and more professionals emerge in this space to help entrepreneurs with equity raises. Remember, you’re not alone, and you can always ask a question by leaving a comment!
Conclusion
Running an equity crowdfunding campaign is not simple, but it can be a very effective way to raise capital for your startup company. Equity crowdfunding is an alternative option for entrepreneurs who can’t (or don’t want to) get funding via traditional methods. Equity crowdfunding also gives entrepreneurs access to passionate customers who can help them reach their full potential as well as provide financing.
