In 2011 I joined Microventures, the first online equity crowdfunding platform, and helped grow it through 20M invested. I say that only to point out we actually did this stuff. Our small team helped create transactions in a nascent space abscent of competitors actually operating for the first year. I know this world deeply and understand both sides of the transaction.
When entrepreneurs speak about their experience with any platform it's almost always mixed feedback. In some cases, it leans more on the negative side. There are three parties involved (platform, investors, startup) so it can be tough to understand exactly why it didn’t work. The predominant reason is the startup and entrepreneur raising couldn't get it done. That statement isn’t a catchall, but I believe it to be true.
The thoughts below assume the 'platform' has active investors and actually works. When someone speaks negatively about their experience on a platform that I know can provide investors, I have to ask "how much did you raise outside of that platform?"
Equity crowdfunding is DIY and success is completely dependent upon the company raising. It's unlikely you’ll see an equity crowdfunding raise subscribe in less than a month unless you bring some serious momentum with you. You're going to have to execute on the business, show continued traction and press, have other investors enter to start the round online and make smaller investors feel more comfortable, pitch for insignificant check sizes and low conversion to invest, constantly monitor and maintain a pipeline of interested investors, etc.
Sounds like raising a normal round, doesn't it? Just like your normal fundraising activities, if you aren't 100% committed to a crowdfunding raise, you're going to struggle to subscribe it, or see a percentage of what you were expecting finally subscribe two months in.
Below, I'll lay out the obvious trends that make companies doing an equity crowdfunding raise successful mixed with some tips that might not be obvious.
Momentum is the main factor. This is true for fundraising, in general. You need to create real momentum to subscribe the round and create scarcity for investors that are slow deciding. A few of the later tips in this list involve creating momentum on the platform if you don't already have it from normal investors.
Make sure the platform’s founder(s) and operating team are entrepreneur-focused and sincerely give a shit about you and your company’s purpose.
Don't do general solicitation and don't flirt with it. The time will come where this matters and is enforced.
Only raise from accredited investors and leave that liability of validation to the platform.
Kickstarter usually has a 30 day window. Equity crowdfunding doesn't work like Kickstarter. Get out there and hustle to subscribe your raise and understand it could take 30-90 days. If you're at the 30 day mark with little traction, be realistic with your time and effort going forward.
Ask the platform for successful companies similar to your business that raised. If there are none, maybe they should poll investors to gauge interest in that type of deal. If you have a highly technical product and no well-known investors already in the round, crowdfunding probably isn’t for you.
Investors are watching your progress the whole way. Press should be shared, milestones on traction and development announced, outside capital should be coming into the round to create a feeling of scarcity with all investors, and the company should generally appear active. All of that communication burden is on the entrepreneur to craft and deliver.
Load the cannon before you begin. Ask the crowdfunding platform to help you prime it with some of their most active investors. As soon as everyone is committed to working together, try to send out an email blast to take conversations from their most active investors. The rest of the investor pool won't see this email. If you can start the raise showing tens of thousands or more already subscribed, no one will feel like they're first in line at the buffet while everyone else is waiting.
You can also try to funnel a couple of $25K+ investors you're working with directly into the campaign. Ask the platform to honor these investments without taking a significant (or any) cut off of the top since you're bringing the money.
Be ready to take the inbound and treat insignificant check writers like angels. They might want to talk for 30 minutes or email back-and-forth in length. If that's a hassle then raise the round outside of this avenue. You’ll have the same exact interactions with angels IRL anyway.
Have a big-name investor or two in your round. This is easier said than done and obvious, but there is causal relationship between this and successful campaigns. This also helps you short the decision making of those involved in number 7.
Gain as many interested investors as possible that can't get off the fence and push them with a deadline. When the raise loses momentum, give those investors a week and offer to take any and all convos/questions during that time. Diligently. The platform can take your deal down at the deadline, but you can realistically still work those warm leads to come in late. Is the platform going to say 'no' to a potential bump in their revenue and a final higher raise number? Probably not.
To reiterate: it's amazing what press on major news outlets can do for crowdfunding investors. It's the same with a Kickstarter campaign as it is with an equity-based one. Continue to share new PR, and hopefully some of it is coming from a major publication. As irrational as this decision factor might be, it moves the needle.
Discuss all of this and more with the platform before agreements are in place.
- Try really hard. I'm beating the dead horse on this one, but if it's a secondary priority your results will reflect that. There is no easy money.