You’ve seen progression of the JOBS Act, right? Some day it’s likely that every day Americans are going to be able to own a slice of the american dream and invest in new startup companies, like the next Facebook or Instagram.
Although large scale unaccredited investment in startup companies is still not available (except for intrastate crowdfunding) now is a good time to start an equity crowdfunding website and get in the game before it’s too late. But how?
In this post, I’m not going to talk about the technology that goes into the foundation of a crowdfunding website, where funds can be securely transferred.
Instead, I’m going to be covering the strategy and marketing that I would use to build a platform, given my experience in the industry.
1. Research the major players
Check out this list I’ve put together of some of the major existing equity-based platforms out there. Aside from comparing the basic benefits and drawbacks of each platform and unearthing pricing data, I would study the messaging of each brand.
For example, at the time of writing, Crowdfunder’s primary message when you come to the website is “Now the crowd can invest in game-changing entrepreneurs.” The second message when you scroll down is “Invest in the next big thing” and the third is “Build your own campaign.”
This tells me that their target audience at the time of writing is investors. It could suggest that there are already enough entrepreneurs out there willing to raise money through equity crowdfunding, but a lack of investors on their platform.
It could also suggest that they believe having quality investors should come first when building a marketplace of entrepreneurs and investors.
Either way, it reveals the questions which will define your venture:
- Which matters more when building a marketplace, buyers or sellers?
- Which is harder to secure at the present time, investors or entrepreneurs?
- Who is your target audience?
Getting these questions right can mean the difference between success and failure.
Let’s also take a look at the messaging at CircleUp, another equity crowdfunding site.
The first message is “Connecting Investors with Consumer Brands.” Unlike with Crowdfunder, they chose the term “consumer brands” rather than “game changing entrepreneurs,” which suggests that they are more focused on established businesses rather than startups.
But why? It’s your job to find out the answer.
Have they found out that they can form a more reliable income stream with established businesses? Have they figured out that people are more willing to invest in established private companies? Why did they choose that message.
CircleUp focuses on successful raises on their website and they have pretty equal messaging in terms of the benefits for businesses and investors. One question that pops into my head is: Does an investor care about successful raises or does he or she care about exits and ROI?
Answering that question could lead to better marketing, conversions, and product-market fit.
As you can see, the research stage is about formulating questions and hypotheses that you will test later. Don’t just assume that other platforms have figured it out.
Also, keep in mind that marketing messaging and venture focus changes over time. Initially, a call to action may be to list a project or venture on a website, until the platform gets enough projects, and in a year’s time, it could be to invest in a project or the benefits of doing so.
2. Feel out the landscape
Aside from doing your own research and looking up the platforms with the most mindshare, I’d also look into research that established firms have conducted on the crowdfunding industry.
I recommend looking into the 2015 Crowdfunding Industry Report, put out by Massolution, and Fund Wisdom’s 2014 Online Equity Investment Report. Crowdnetic has a report on the crowdfunded securities market as well. Finally, I’ve put together some statistics on the crowdfunding industry for easy consumption.
Personally, I don’t think that a business plan is necessary for starting a successful business, but I do think there is value in putting one together, even if you never use it and throw it away at a later date.
The information that you learn and research you accumulate will help you get a clearer picture of your industry, which parts are growing, and how you can stand out. This info will also help put together a pitch deck, should you ever approach investors regarding your venture.
Along with researching crowdfunding in general, I’d get an idea of the number of entrepreneurs out there starting businesses, raising angel investment, and the types of entrepreneurs. It can help you decide which early adopter crowd to narrow in on, whether that’s tech entrepreneurs or ecommerce businesses.
3. Implement the 80/20 principle
Simply stated, the 80/20 principle is when 80% of a your results come from 20% of your work or input. This could take may forms.
80% of a company’s revenue could come from 20% of its customers or products.
80% of your traffic could come from 20% of your marketing activities.
80% of your weight loss could come from 20% of what you’re consciously doing to try to lose weight.
The 80/20 principle is one way to identify what doesn’t matter in a venture, which saves time, money and allows you to focus on what works.
To give you an example, a programmer who is launching a new social networking web venture could spend all of their time and money on advertising, setting up a good business structure, a nice site design with lots of theme options for your profile, and more.
But, we already know this story. Mark Zuckerberg didn’t focus on everything. He didn’t focus on profile themes. There wasn’t the same amount of fancy functionality as MySpace. He didn’t even set up the company correctly at first.
He did, however, focus on the right things that mattered. The 20% that caused the 80% of his results. He found the levers that moved the needle and ignored those that didn’t.
So my question for you is, what is the right work that you need to do in order to get the ultimate result?
Yes, you could worry about social media, PR, advertising, investors, entrepreneurs, white labeling software, building in a certain type of functionality, or creating an analytics engine that can be used to evaluate investments in other industries.
But most of the feature requests and avenues that you can pursue won’t matter. There are many opportunities out there, but picking the right ones is what matters. It’s your job to figure out the activities, functionality, and approach that moves the needle.
4. Evaluate your venture’s funding situation
This is another way of saying that you need to pinpoint the length of your startup’s runway.
If your entire venture is banking on the wide scale adoption of equity crowdfunding, then time is a key component to the survival of your venture.
The longer you put off raising money and the longer you bootstrap the venture, the more time you will have to outlive your competition. You won’t have the pressure of needing to put capital to work and get a ROI for your investors.
However, if you’ve determined that your venture can be sustainable and profitable in the existing equity crowdfunding environment, then raising significant money is a more enticing route. But before you do, I’d nail down the exact mechanism that will cause longterm growth.
Have you figured out that paying $1000 a month to advertise your website to investors or entrepreneurs will bring in $3,000 worth of profit?
Or, have you nailed down the metric that for every successful raise or signup, your user base grows by X%?
If you don’t have this data, then you’ll be using the funds that you’ve raised to get product-market fit and develop a sustainable growth engine. You’ll then need to raise another round to either continue figuring out how to build that engine or fuel it.
The good news is that if you’re strapped for cash, I’ve put together a few bits of wisdom that I’ve learned when growing a tech venture on a small budget.
I highly recommend reading The Lean Startup by Eric Reis. It should be your bible when starting a tech venture. It’s certainly changed my life. Here’s an excerpt.
“Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers.” There are four ways this can happen:
- Word of mouth: Entrepreneurs telling other entrepreneurs? Investors telling other investors about the great deals on your platform?
- As a side effect of product usage: Investors must join your platform to invest in the next hottest startup.
- Through funded advertising: You’ve figured out a message that converts well and it makes sense to pay for ads.
- Through repeat purchase or use: Founders raise their future funding rounds on your website or investors stay on the platform for other investments.
“If the rate of new customer acquisition exceeds the churn rate, the product will grow.”
It’s your goal to put your finger on the avenue that will drive your engine of growth at different stages of your venture and to focus on it. Your viral coefficient will determine how fast you will grow.
A viral coefficient of .10 means that for every 10 customers you service, 1 will recruit another. It’s not sustainable or hands-off growth.
However, if you have a viral coefficient above 1, then your venture will grow exponentially because each person who is on your site will bring more than one other person to the site.
Not all companies require a viral engine of growth.
6. Who are your early adopters?
All too often, I speak with many tech entrepreneurs who make the common mistake of thinking that your target market is your total market.
On the flip side, many entrepreneurs try to go after the total market and not a target or niche within the overall market place.
The better approach is to segment the total addressable market and go after a niche that makes sense first. Then, you can expand your marketing and product offerings to encompass more of the market.
For example, Amazon started out selling books online. Facebook initially focused on college students. YouTube wasn’t always a hub for content creators, entertainers, and upcoming internet celebrities. SnapChat is just beginning to incorporate more sophisticated storytelling and brand partnerships into its platform.
You might have a perfect vision of how users will interact with your platform, but who will use your platform first? Usually these are customers who suffer from the painpoint you aim to solve most.
By focusing on a niche within a larger marketplace, you’ll be able to do more with less, have more targeted marketing messages, and build up your credibility in a space.
7. Who has a vested interest in your success or industry?
As a new tech startup, you’re going to have to make a lot of hard sells. Before you make them, identify the easy sells.
Before trying to score a hit in a major media publication, begin to get to know others in the entrepreneurship, tech startup, or crowdfunding niche itself to get the ball rolling.
If the companies that have raised funds on your existing platform constantly need legal or marketing advice, then relationships with reliable companies that can help on these fronts can be a win-win, as they’ll help popularize your platform and the companies that have used it.
I’m always interested in featuring crowdfunding platforms on my podcast, as long as the founder or representative can deliver actionable and practical tips that will be helpful for anyone interested in launching a crowdfunding campaign.
Conclusion
I hope some of these tips have been helpful and given you a framework to consider when launching your equity crowdfunding website.
If you’d like to do a Skype consultation or get more tips on launching a new tech startup venture, feel free to hit me up via email or in the comments below. I also am also a startup advisor.
