Understanding Equity Crowdfunding and How it Can Help Build Your Business
20 April 2015 ,Monday
Crowdfunding is a way of letting a crowd decide the future of a project or product through the power of money. People and organizations have used crowdfunding for several years now. With the passage of the JOBS Act in 2012, businesses were allowed to join in on this new, bold way to raise funds either through rewards-based campaigns or equity crowdfunding.
Don’t believe it can be done? Raen, a luxury sunglasses company, raised $825,000 from eight investors through equity crowdfunding. A real estate crowdfunding company, iFunding, raised over $1 million in one week through an equity campaign.
What is Equity Crowdfunding?
An equity campaign allows entrepreneurs to harness the power of the internet to find more investors faster. Instead of meeting with one or two people to convince them to invest in your business idea, you may be able to find eight or ten people to give a little less. Lowering the minimum amount of money needed from an investor lowers their risk. This makes your business opportunity more attractive.
Unlike rewards-based campaigns, where each backer receives a specific item based on the amount they give, backers of your equity campaign get a share of your business. Long before you launch your campaign, you’ll need to know what you’re prepared to offer in exchange for the cash infusion from each investor.
How Does Equity Crowdfunding Work?
Unlike other crowdfunding campaigns, which often rely on their message to go viral and are intended to attract the most amount of people, an equity campaign must be much more targeted. You don’t need – or want – thousands of backers. You’ll need to craft your pitch to resonate with people most likely to invest in your business and work within your network to get the campaign in front of them.
Before you launch, your investment offer will need to be complete. The terms you’re offering need to be set and all legal agreements must be in order. With that done, you’ll be in a good position to prime the pump for your campaign. Find at least a few investors prior to the start willing to buy in on the launch day. No one likes to be the first to give – use your contacts to eliminate this problem.
All Crowdfunding Campaigns Have Similarities
Whether you choose equity or rewards-based, all crowdfunding campaigns have a few things in common. Keep this in mind as you plan your campaign:
- Perfect your pitch. Tell a compelling story of what your company will do with the investments you receive and how your product fills a need. Use various forms of media like video, photos, and the written word throughout your campaign.
- Have a plan. In equity campaigns, a full business plan is a must, but it’s also good for other crowdfunding, too. This shows potential investors your idea is fully formed and that your chances of success are likely.
- Tell people what’s in it for them. Make it very clear what investors are receiving for their money.
Equity crowdfunding allows you to reach more people for smaller investments, giving your investors smaller shares of your business. With a good enough idea and a great marketing pitch, you may find more investors than you know what to do with – allowing your company to grow bigger and faster.
If you’re considering a new business venture and want to give crowdfunding a try, work with the experts who can help your business grow from the development stage to the launch and beyond. Contact us today and let’s make your business goals a reality.