Since the passing of Title III and Title IV of the JOBS Act, an increasing number of entrepreneurs are looking to equity crowdfunding as a viable and effective way of raising capital to turn their ideas into successful businesses. As with any form of soliciting money, there are right ways to go about it, and there are wrong ways. Even the greatest of ideas have the distinct possibility of failure despite the exciting and lucrative potential in the mind of the founder(s). Listed below are five common mistakes we have seen that can prevent a company from successfully reaching their funding goal:
- You rely on the platform to give you investors.
Wrong! Wishful thinking is imprudent and futile. Previous investors that are associated with a selected platform will not automatically invest in any campaign they see listed on the platform. Many platforms claims to have over 100,000 registered “investors” but none of these previously engaged users will invest in a campaign without proper promotion or belief in the idea, product, or business model.
- You believe that people are primarily motivated by financial returns.
Wrong! People want to feel that they are a part of something much larger, substantial and positive to society. The general public wants to invest in companies they believe in, because they feel their investment is a tangible effort to make their world a better place. Today, people want the chance to become a part of and to own a part of a company that could potentially change the world.
- You think that equity crowdfunding is a part time job.
Wrong! There is a clear and obvious pattern when studying startup founders and their rates of success. The founders who are solely focused on elevating their startups to the next stage are infinitely more successful. Founders that are distracted by other obligations — whether that is other businesses, jobs, or priorities — do not succeed. It takes a focused founder and team to execute a successful crowdfunding campaign.
- You try to bundle more than one company into a single raise.
Wrong! Investors like a focused business with a clear vision. A company that is trying to promote both a publishing company and a product company will seem conflicted to potential investors. It takes a driven and resolute company and team to succeed in changing the world, and you do not want to muddle your campaign by promoting several different companies under one raise.
- You assume there is an established market of startup investors.
Wrong! This is what I like to call the Shark Tank Factor. Every week, there are millions of people eagerly waiting to watch the show because they are interested in startup and investment opportunities. Some entrepreneurs believe that potential investors — like Shark Tank fans — are simply waiting for an investment opportunity to materialize, but just showing them any opportunity does not guarantee their investment.
Companies able to avoid these five disastrous mistakes are off to a great start. In addition to knowing what not do, here are five of the best practices that may help ensure a prosperous campaign:
- You identify and profile, then estimate the target size of your community.
Find out who is interested in your product or idea, and reach out to like-minded demographics. As your community will provide most of your funding, it’s a good idea to estimate the community size you will need to get fully funded.
2. You build and engage with your community.
Building a relationship with your community as early as possible is key to success. Keeping them engaged right up to launch day is extremely challenging but can also be very fruitful too.
- You create a compelling message that transcends the product, and focuses on the purpose.
Having a communication plan ready to roll is key here. Nobody needs to know how a Microwave “engine” works to be able to use one. Messaging must be simple and effective.
- You plan a systematic and methodical approach.
There is nothing more stressful than the moment of launch. The anticipation and excitement has mounted as the big day has finally arrived. . As you would with any business plan, a solid plan of the what, the where and the when is vital at this stage.
- You launch with momentum.
When your campaign goes live, you need traction within the very first hours. Remember, nobody likes to be first so make sure your closest investors are ready to go the moment you launch. Be mindful of regulations and some which limit promotion activities. Today, you need to make a splash and as big a splash as possible!