Smart Founders Do These 5 Things When They Raise via the Crowd
Mr. Wonderful here –
I’ve been talking about equity crowdfunding and how it’s on its way to becoming the next big thing for years. Why? Well, it’s better for founders and it can be MUCH more interesting for your customers as well.
Unlike with traditional sources of capital, say from VCs and private equity, as the founder you rarely run into the preference shares and liquidation rights that can undermine your control of the business. Meanwhile, your customers have a way to align themselves with your brand like never before because now they can own a small piece of the company and help get it off the ground.
Raising through the crowd is no cakewalk, though. And just like on Shark Tank – or StartEngine’s Pitch Competition for that matter – you have to be prepared. Otherwise, as far as I’m concerned, you don’t deserve a solitary cent.
Don’t worry though, as always, Mr. Wonderful is here to show you the way. Here’s what you need to do to make your equity crowdfunding campaign a success.
- Market your raise
Social proof is power, so you have to find a way to generate buzz early in your raise. A great way to pour gas on the fire is to offer investors perks for investing at the outset of the campaign or for reaching certain funding milestones – for instance, 10% bonus shares in exchange for a $5,000 investment.
Another option is to offer shareholders merchandise, discounts on your product, or access to exclusive experiences when they invest. You may think it’s cheesy but don’t forget – even sharks like free stuff, and you can use this tactic to get larger investments in your campaign. Want to be the first to receive our product? Make a $3,000 investment – you get the picture. Experiences, like a tour of your production facility or the chance to interact with an early prototype of your product, have the added benefit of building a deep connection with your brand. For investors, the primary get is equity in your company, but you shouldn’t write these perks off either.
Lastly, RUN ADS. On equity crowdfunding, user acquisition and investor acquisition go hand-in-hand. So a little push can go a long way in terms of ROI. Get the word out through press releases and integrations into your site, email and social. Almost by definition, your early adopters want to see your company succeed – so why not lean on them for your raise?
- Make it visual
Have you ever read an episode of Shark Tank? Of course not. Even the most sophisticated investors want to feel excited about your brand, and the same is true for the crowd.
If you look at the companies in my portfolio – especially the ones who’ve used equity crowdfunding – they all know how to tell a good story.
- What’s so special about your founding team?
- What’s the problem that you’re solving and why is it important?
- What’s the path to profitability?
- What makes this an irresistible opportunity for me as an investor?
Just like when you’re pitching a VC, when you’re raising through the crowd you’re up against dozens or hundreds of other investment opportunities. So you have to tell your story quickly and package it in a way that’s compelling for your investors. A short 90-second video at the top of your campaign page can work wonders here.
- Don’t be a pig and know your numbers
Whether you’re pitching on Shark Tank or raising online, you have to be able to justify your valuation. Don’t get greedy here, or investors will punish you for it – and they should too.
- What are your customer acquisition costs?
- What’s the lifetime value?
- What are the margins like?
- How big is the market?
You need to be able to answer these questions and your answers should line up with your valuation. If it doesn’t, your investors will jump on you for it in the comments. Remember, they aren’t VCs with a three-year time horizon to profitability. They’re in it for the long haul, so treat them like the partners that they are and leave some room for them to benefit. By the way, you shoot yourself in the foot if you don’t because you want to entice them to contribute more capital down the road.
- Be honest
This is one of your best opportunities for proof of concept. You have the chance to demonstrate that your customers like your product so much, not only are they willing to buy it, they want to invest in your company. So don’t blow it.
Investors from the crowd believe in your mission and want to see it succeed – even when things get tough, which they will. In these instances, smart founders know to tell it like it is and take the heat. Because if you don’t, you burn trust with the staunchest group of supporters you’ll ever have and you’ll be in hell in perpetuity.
- Find the right partner
When equity crowdfunding got started, I wanted to compete with Howard Marks right out the gate. But, when I saw what he and the StartEngine team were building, I decided to join instead. Why? I could tell then and there that they were on track to becoming one of the dominant platforms in the space.
Fast-forward to today, and StartEngine now has over 1,000,000 prospective investors in its community and a suite of services for fundraising companies – like built-in purchase flows, a funding portal for Reg. CF, a platform for communication with investors, customer services – the list goes on and on.
Whoever you choose to partner with, listen to Mr. Wonderful and follow these five steps to make your raise a success. After all – I’m always right.
Kevin O’Leary is a paid spokesperson for StartEngine. View the details here.
