Crowdfunding your equity isn’t like getting it from angels or a venture capitalist.
Angels, who are the first to take an equity stake, want a dream and a dreamer. They want to look in the founder’s eyes and see the passion. They want to hear the plan and visualize the company operating.
Venture capitalists want the numbers. They want to see your research, your addressable market and your progress toward getting to market. They want to meet your team and envision you joining the Fortune 500. The best ones want to help run it.
Crowdinvestors won’t see you up close. They may not understand the numbers. The need a quality online presentation, which should include an uplifting video. The better your presentation, the easier it is to understand; and the more likely you are to get money.
Equity Crowdfunding: Not About the Cash
One more point. It’s not always just about the cash. Many people who buy into equity crowdfunding campaigns are trying to get more than a profit from their money. They want new ideas, but they also want an uplifting social message. The first equity crowdfunding campaign I wrote about was a doughnut shop. The funders were paid back with doughnuts. They now have two shops.
This means that if you’re going to do an equity crowdfunding campaign, prepare to spend a lot more time and energy in your online presentation, choosing its placement and spending money on online ads aimed at getting people to read it. Jason Fishman of Digital Fish Agency writes that this means knowing as much about algorithmic strategies and targeted outreach as your own product or service.
Horses for Courses
You can also mix-and-match equity crowdfunding investments. Many companies have sought angels for their initial capital, but crowdfunded later rounds, making management less dependent on the voice of one or two big funders. This takes self-confidence because, as I said, the best venture capitalists are worth listening to.
Where you go also depends on what they need because crowdfunding sites specialize. Decide what you want before you decide where to go for it. Here are some examples:
- AngelList sees itself as a community, harvesting talent that wants work at start-ups, crowd-sourcing research in start-ups as well as capital. It’s a good place to seek seed capital
- Republic seeks angels with as little as $10, emphasizing the research and due diligence it puts up-front in projects it hosts. It’s a good place to seek a massive number of small investors.
- WeFunder says it wants ideas that can change the world for the better, and investors in it for the long haul. It’s a good place to seek funding with a social good.
- Crowdfunder is a bazaar with tons of deals, in many industries, at a variety of capital levels. That makes it a good place for Series A and B rounds.
- SeedInvest offers a chance to buy start-ups, but it carefully vettes them first, to weed out the cranks and scams. They’re looking for an honest man or woman.
Simple Lessons
You can also learn from studying successful crowdfunding campaigns. Here are some lessons:
Have a Clear Business Model: GOffee offers a business model that sounds a lot like Luckin Coffee, a Chinese startup. The tweak is that GOffee sells to corporations who want coffee as a service, not to workers who want a cup delivered to their desk. This approach helped it raise over $1 million at StartEngine. based on metrics that were easy to understand, like revenue per employee and the cost per cup.
Win the Buzz War: Winc did a successful offer of $6.8 million from 3,531 in conjunction with other venture funding. This gave them some names to drop, like Bessemer Venture Partners and Crosscut Ventures. The public raise was part of a Series D. Winc has been in the public eye for a system that asks you questions about other tastes, then chooses wine based on those answers.
Make Multiple Rounds: GoSun first went to StartEngine in 2017 to make a solar cooker, which points the Sun’s rays at a small circular cooking unit. By the time of its Series A round in 2019 it had moved into solar panels to create refrigerators, lighting systems, and off-grid power. It had $1.4 million in sales and partnerships with major retailers. This let it measure just how much equity it wanted to surrender, and what its price would be.
Be Ready to Change Direction: Small Robot originally sold the idea of small agriculture robots. But it was able to raise $2.6 million on CrowdCube by creating a weed map service showing precisely where weeds were in English fields, and of what type. They got 20 farmers to put down 100,000 UKP in deposits, and 70 more expressions of interest raising another 200,000 UKP.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
