If you’re contemplating an equity crowdfunding raise, there are three non-negotiable, foundational requirements for success. Without them, your raise won’t get off the ground. These three factors are sequential in nature: Equity campaigns that can’t master the first won’t need to bother with the rest.
1.Create a Clear and Compelling Business Value Proposition (VP)
A business’ value proposition is simply its reason to exist – the one thing it does better than anyone else in the world. The VP has to excite potential investors and inspire their confidence.If a business owner cannot define his or her proposed business’ value clearly and emphatically, the business stands a slim chance of success in raising capital.
A solid VP synchronizes the following elements:
- A focused target market segment with substantial growth opportunities,
- A business model that evinces defendable, sustainable profit margins,
- A marketing and communication plan that creates and delivers value internally and externally,
- Great management team and employees,
- Scalable, affordable technology deployment.
The VP is the first prerequisite in a linear progression of a successful equity crowdfunding campaign. Without a clear and compelling VP, you might as well pack up and go home.
2. Define the Equity Strategy Itself
An equity crowdfunding campaign has many considerations that must be strategically designed for each business. While several factors are involved, the most important factors are:
- How much money the business needs,
- How far that money will take them,
- What the business is worth and how much to give up to investors,
- Which capital raise option to use.
A business owner may think $1 million will be sufficient, when actually, depending on his goals $1 million may not be enough to get to the next round of funding. By analyzing closely what the capital needs are, the right amount of capital can be identified and raised, and issuers can avoid underfinancing, which occurs far too often with initial capital raises.
In addition, each type of raise has different compliance issues that have to be managed and budgeted for. For example, in Georgia, a business pursuing an intrastate raise of up to $1 million is eligible to work with non-accredited investors, as many as it wants, realistically – whereas under Rule 506 D, a raise has no real dollar limit, and under Rule 506 C, the issuer may advertise the offering. The complexity and cost of compliance for each of these options varies significantly.
Other elements of an equity crowdfunding strategy include:
- Finding a crowd to whom the business appeals,
- Creating a compelling video presentation to attract investors and customers,
- Providing transparent financials and a clear business plan,
- Following all compliance rules regarding financial and information disclosure.
3. Maintain Investor Relations After the Campaign
Few business owners at the start of their equity crowdfunding campaign consider the aftermath, but there remains plenty of work to be done once the capital is raised. Businesses must keep investors and shareholders appraised of their progress be it good news or bad news. In today’s world of instant communication, investors and customers can learn about how your business is doing through a dozen ways; let them hear it from you. Bad news don’t get better with age.
Maintaining transparent and honest communication with your investors isn’t just a good business practice; it can also help you raise money again in the future. Furthermore, investors can become consumers; contributing to the sales and profit of your business venture.