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Start-Ups

7 Keys to Success at Equity Crowdfunding

By Townes Haas   |    December 14, 2016   |    11:15 AM

 

For decades, entrepreneurs were forced to seek financing from venture capitalists, angel investors, friends, family and other unlikely sources. Thanks to equity crowdfunding campaigns, this has all changed. That said, before you rush forward in search of business capital, learn how to craft a winning campaign.

What Exactly Is Equity Crowdfunding?

Historically, U.S. securities laws forbid private companies from raising cash from over 35 non-accredited investors. Though intended to protect people from losing money to con artists or risky start-ups, these regulations kept many people from profiting during the dot-com era, while also limiting money for new ventures.

In 2012, Congress passed the JOBS Act, which - among other things - allowed entrepreneurs to seek public money through crowdfunding sites. To do it effectively, however, it pays to know the following guidelines:

  1. Target the right product. To pique interest in your campaign, prospective investors must be able to easily understand your idea. Food, electronics, fashion and consumer products are particularly well suited for equity crowdfunding campaigns.

  2. Craft a compelling video. This will make it easier to tell your story, while allowing people to view prototypes of your product.

  3. Set an achievable mark. On certain crowdsourcing platforms, you won't receive a single dime unless you reach your total funding goal. Set an achievable monetary target, but make sure it will be enough to execute your plan.

  4. Include high-quality images. Crisp, compelling photos make it easier for supporters to spread the word about your campaign using social media.

  5. Plan a marketing campaign. Don't even think about starting an equity crowdfunding venture without targeting some good marketing channels. If no one knows about your campaign, you aren’t likely to raise much money.

  6. Try to be unique. According to research, cool, unique and cutting-edge ideas are more likely to go viral and garner support. Even if your product doesn't fit this description, you should infuse some creativity into your presentation.

  7. Choose a good platform. Make sure the crowdfunding site meets your individual needs. Find out how much money you can raise and, most importantly, how much you will need to raise to receive any funding.

While equity crowdfunding provides access to new capital, it shouldn’t be viewed as a single solution for your fundraising problems. Focus on building a strong support network both online and offline to create reliable streams of capital now and later down the road.