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Is equity crowdfunding right for my start up business?
In recent years, equity crowdfunding has emerged as a successful alternative funding solution for high growth businesses which have perhaps been deemed “too risky” for banks, “too early-stage” for traditional angels, and “too small” for VCs.
If you’ve found yourself on the receiving end of one of these rejections, you’ll have started looking into other ways in which to raise money for your start up business, and are wondering if raising finance from an online crowd is the way forward.
Equity crowdfunding is a good fit for businesses which:
- Are run by entrepreneurially-minded teams
- Show high growth potential
- Is looking to expand their wider team
- Have a proposed exit strategy in mind
- Have a high social media following and brand awareness
If your start up has all of the above, read on to see what equity crowdfunding could add for you.
What’s the most important thing about running a fundraising campaign? Surely, it’s hitting your fundraising target, isn’t it? Wrong.
Although the money affords you the runway you need to take your start up business to the next stage, there’s so much more you can get out of the process.
Ready-made brand ambassadors
Traditionally, people who wanted to share news of which business they’d invested in, did so via word-of-mouth.
However, with the introduction of both online investing opportunities, such as equity crowdfunding, and social media people now have the opportunity to broadcast their investment to a worldwide audience.
This can work to your advantage because now tens, hundreds, or thousands of investors can tell their potentially millions of followers, who will then all know about your start up business.
As long as you’ve positioned your brand well and the message is being spread by people who believe in your business, you should see an increase in brand awareness and interest in your campaign.
As well as the operational team, if you’re serious about growing and exiting your business within the next 7-10 years, you’ll be conducting follow on funding rounds at a later date which means that you’ll also need to start building a strong team of non-executive advisors.
The perfect candidates for this role could have invested into your business, so it would be a good idea to carry out some background research on your investors.
Alternatively, these people may be able to put you in contact with other people who you would like to invite to take an advisory role in your business.
Similarly to how your campaign can be used to attract advisors, you can also find people to act as mentors for yourself and your team.
Although not all of the advice you will receive from your investors will be useful, there is also bound to be some valuable advice in there.
When you do start to receive comments, reach out and be proactive in the finding of your ideal mentor. Mentors should offer advice but not try to make your decisions for you.
A good sign that you've found a mentor who knows their stuff is that they're busy running their own business, but if they're the one you want - don't be afraid to ask them.
Service providers / partners
You’re less likely to have potential service providers and/or partners invest into your start up business than mentors and advisors, but you can still keep an eye out for work you like.
For example, maybe you’ve seen a video or styling of an investor presentation than you think looks especially professional, you should contact them.
Looking at other business owner’s pitches is a great way to view service providers’ work in action. Then, you can decide if you think they would be able to show your investment opportunity off at its best and employ their services.
The company may be half way across the country and you would not have come into contact with them had it not been for the world of equity crowdfunding.
Get on the radar of some serious investors
Raising money from an online crowd isn’t just for smaller investors – your friends, family, and wider network. Some platforms (such as GrowthFunders) have been specifically designed to enable larger, professional investors such as angels and VCs to invest alongside the crowd.
With these platforms, you can attract attention from angel investors and VCs a lot earlier on in your business’ journey than was possible traditionally.
These investors want to see traction, financials, and a flawless business plan. If you can get your wider network investing, you could find yourself being approached with match funding.