Crowdfunding became popular seemingly overnight, but equity crowdfunding continues to make some startups cautious.
The reason for this is that equity crowdfunding gives part ownership to those who invest. Many entrepreneurs want to keep their business private and not let any pieces of it go. However, equity crowdfunding can mean the difference between failure and success. There are situations where this kind of support makes good sense. Let’s look at five reasons you should consider equity crowdfunding.
Overcoming Reluctant Banks
Many new businesses find it difficult to persuade bankers to loan them money. They usually don’t have a credit rating established for the company, and they often don’t have any sales or reliable sales projections to use in presenting their case. In addition, a startup may not have collateral to offer.
Equity crowdfunding allows you to present your business to prospective investors when it is still an idea. You can be up front about needing funds to get your first products or services launched. This can give you vital funding at one of the most crucial times in your business development.
Mouth is an example of a business that went from idea to success through equity crowdfunding. The company sells food and alcohol online — offering 1200 different products and allows you to create gift bags. It also has clubs that buyers can join. Mouth raised a total of $2.9 million through AngelList in two different offerings. When starting out, this company was merely an idea that needed funding but today, it is a viable e-business.
Creating Brand Ambassadors
Many new companies struggle to get endorsements, even from customers who love their products. Most customers don’t walk around touting a business they found.
But when you fans become owners, they have a financial interest in your success. They go from being interested customers to being spokespeople for your brand. This can help you get the word out, especially at a time where your advertising and marketing dollars are limited.
Brent Morgan’s Superscreen is an example of a campaign that relied on his network of fans for success. He began building his network long before launching the campaign, and he listened to his fans regarding how to shape the offering.
Attracting Angel Investors
When your equity crowdfunding grows, you may attract the attention of angel investors. Popular equity crowdfunding campaigns often gain reputation, and people who are on the lookout for new businesses for investment may jump on board.
Jay Adelson, the founder of Equinix, Revision3, and Opsmatic caught wind of an equity crowdfunding campaign for the game console Ouya. Jay came on board after the campaign had already raised $8.6 million on Kickstarter.
Becoming a Cause
If your business has a mission with improving society, your equity crowdfunding can help create a movement. University studies show, for example, many women actively look for opportunities to support businesses owned by minorities or women.
Social innovation and business innovation make for good partners in equity crowdfunding. You can attract people who are interested in recycling, renewable energy, and education of underprivileged populations, to give just a few examples.
Testing the Waters
You can announce your desire to start an equity crowdfunding campaign by registering with a crowdfunding platform to find “indications of interest.” This does not require an actual commitment from investors; you only ask if there might be interest and if so, how much they might consider investing.
Elio Motors did this very thing and got 9200 expressions of interest. When the campaign was launched, about half of those interested parties invested in the company.
The Bottom Line
Equity crowdfunding can be a source of money for your business if you start developing a network early, create an attractive pitch, and make your offering relevant to the interests of your potential investors. Yes, you will be giving up some of the ownership of your company, but you may also be on your way to the kind of success you could never achieve through self-financing.
Planning to take your equity crowdfunding campaign to the next level? Read more in this article as we uncover the secrets behind every successful campaign.