Equity crowdfunding is a model that gives investors the opportunity to acquire shares of a company during its early stages. Very few companies used to rely on this strategy, but the JOBS Act of 2012 made equity crowdfunding more accessible by opening these investments to non-accredited investors. Some experts believe this model could one day replace venture capital.
Being able to secure funds from non-accredited investors gives you access to more capital, but there are some key challenges to overcome. While venture capital requires you to prove that you have a credible project to a financial institution or a few large investors, equity crowdfunding requires you to convince a larger number of investors.
Who are your investors?
You can get a better picture of your ideal investor by asking yourself a few questions. Consider how much equity you can offer and what kind of decision-making power investors will have. You should also assess the financial rewards that you are offering and how investors will make a difference by financing your project.
You will often find that the profile of your potential equity crowdfunding investors is similar to the target audience for your products or services. Once you know more about potential investors, you can choose the best crowdfunding platform and strategies to reach out to them.
Convincing your audience
Opting to use equity crowdfunding instead of raising venture capital doesn’t mean you won’t need a good elevator pitch. However, your pitch needs to speak to as many potential investors as possible instead of being tailored to a few key people or institutions.
Your pitch is about grabbing the attention of as many investors as possible. You can then use your business plan to convince your audience and show them why your business is going to succeed. Think of your business plan as a road map. A detailed business plan that addresses every possible risk will inspire confidence. Depending on the stage that you are in, use numbers and other evidence of what you have accomplished so far.
Talking about your market or industry is another strategy that you can use to convince your audience. You can use numbers to show them why the market is viable. Bring in advisors and customers to talk about your market.
Your product is another key element of convincing investors. A prototype can become a major argument in favor of investing in your business venture. Ideally, investors should get an opportunity to try out your product. This will make your vision more concrete and will reassure investors when it comes to the quality of what you are offering.
Public relations, marketing and communication
Don’t neglect the power of social traction. Investors are going to do their own research about your business venture. Finding news stories covering your project or past achievements can make a difference. Getting endorsed by influencers on social media can also give more credibility to your business venture.
You need to have a strong communication strategy that includes gaining social traction and facilitating direct communication with potential investors. It is crucial to keep them updated on every step of your journey by using a mix of social media, emails, website updates and even in-person events. Your goal should be to form a unique connection with each person who is interested in your project and to make them feel like they are a part of your adventure.
Raising capital via equity crowdfunding requires you to develop a communication strategy that will be implemented in the long term to build strong relations with your investors. You can learn more about the strategies you will need for a successful crowdfunding campaign on our podcast or in our newsletter.