How to Improve Your Chances of Equity Crowdfunding Success
Equity crowdfunding solves a lot of problems for entrepreneurs seeking funding. Instead of relying on only one or a small handful of angel investors or venture capitalists, you can open your idea to the world and attract funding from a wide variety of different people. You can hypothetically raise more money this way and avoid some of the hassles of messier equity funding arrangements.
The deal is good for investors, too. Investing in equity crowdfunding campaigns is a great way to diversify your portfolio and get exposure to potentially high-growth businesses that would otherwise be off the table.
That said, equity crowdfunding is far from a guarantee. Most projects never hit their target funding, and those that do still have several challenges to sort out before building the actual business.
How can you improve your chances of equity crowdfunding success?
Know the Pros and Cons
Before you start building a campaign or marketing your business idea, you should familiarize yourself with the pros and cons of equity crowdfunding. This isn’t a perfect system, nor is it an appropriate system for every type of business or every business owner.
You can broaden your potential reach this way, and do so relatively conveniently, but you’re also going to be subject to several restrictions, including laws, regulations, and rules as dictated by the platform you choose.
On top of that, you’ll need to sacrifice some of your autonomy, since your equity investors will have an ownership stake in your business.
Choose the Right Platform
Next, choose the right platform. There are dozens of equity crowdfunding platforms to choose from, and all of them offer a slightly different experience. You’re going to find some commonalities across the board, including some of the specific rules for orchestrating and managing an active campaign. But you’re also going to find different fee structures, different levels of popularity, and different niche benefits. Make sure you choose the platform that best fits your idea and your goals moving forward.
Hire a Lawyer
One of the earliest things you should do is hire a lawyer so you can start legally planning your business and your equity crowdfunding campaign. Equity crowdfunding is legal, of course, but it’s still highly regulated; you need to thoroughly understand the conditions under which you can raise money, how much money you can raise, and how you can use those proceeds in your business. Your lawyer will help you sort everything out.
Put Together a Compelling Plan
People aren’t going to invest in your business idea unless you do an excellent job of presenting it. And you won’t be able to present it excellently unless you have a strong foundation.
If you haven’t already, take the time to write a full business plan. Pay especially close attention to the following:
- The idea. What is your business idea and what makes it unique? What is your business going to do and why are people going to buy what you sell? How are you going to operate, what are you going to charge, and how much of a profit could you potentially turn? It’s also a good idea to brainstorm about the name of the business and how you’re going to position it from a marketing angle.
- The market. Who are your primary demographics? Who are the people that are going to be buying your products and services? Do you have objective evidence to prove that people are interested in this type of business?
- The competition. Even if your idea is wholly unique, there are probably still some adjacent competitors to contend with. Who are your top competitors and what is your plan for dealing with them?
- The financials. Of course, you’ll also need to lay out a plan for your financials. How is your business going to make money? How is it going to scale? How were you going to use the money you raise and how much do you really need?
Get Some Early Backers
At this point, you’ll be ready to get some early backers. In time, your project might generate momentum on its own, spreading through word of mouth – but long before that happens, you’ll need to secure some early investors. Consider networking and hitting up some of the people you know personally to attract your first few backers.
Equity crowdfunding campaigns do best when supported by active, targeted marketing and advertising campaigns. Be ready to invest some money here.
Even if you follow these tips and plan appropriately, you’re still not guaranteed to reach your goals or get the funding you need to start your business. There will always be a risk when starting a new venture.
Still, your chances will be much higher if you’re adequately prepared and you’re willing to make adjustments along the way.