Top 5 Ways to Prepare Your Company for a Successful Crowdfunding Campaign

By Jullian Sidoti

A big problem with many crowdfunding campaigns that I have seen is that they completely lack planning. Throwing a deal haphazardly on a crowdfunding platform does not make a great crowdfunding campaign. Actually, it sets it up for imminent failure. First, a company looking for any type of financing whether it is equity, preferred equity or debt, needs to be able to answer all the questions that an investor might have. The biggest questions always asked by investors are “how much money do I need to invest?” and “when am I going to get my money back?”

Second, the crowdfunding company really must consider how they are going to raise the capital.

Use the following questions to start making your plan:

• Have you developed your story? You should be able to tell the overarching story in about 30 seconds and then fill in the details.

• Have you researched the right platform? Do not just run to the first crowdfunding platform that you see. (See Tip #2)

• Did you run the numbers? Often, those crowdfunding companies looking for capital can get a tad bit desperate. Instead of focusing on what they can offer and should offer, crowdfunding companies often make the mistake of offering what they “believe” the crowd will need for them to make the decision to invest. This is often not backed by any studying or research of the crowds, trends, or more importantly, the company’s own financial statements. Therefore, make sure you “run the numbers” before making an offer.

• Have you set up all proper social media to insure success? The best crowdfunding campaigns have a solid foundation in social media with a consistent message. (See Tip #3)

• Do you have a calendar for marketing? Consider the timing of your marketing message. Is it consistent? Is it thought out?

Research Crowdfunding Platforms

Not all crowdfunding platforms are created equal. At all. In the world of crowdfunding, a company has one opportunity to make a first impression on the crowd. Part of that impression involves being on the proper crowdfunding platform for your particular deal. Our firm consistently is asked “can you get me on a crowdfunding platform?” by potential crowdfunding clients. The answer is “Of course!” but that’s no good if it is not the right platform for your deal.

Platforms range radically: some are for real estate, some are for biotech, some are for just general startups. These differences are from a 30,000-foot view; the real differences are in the details.

For example, some of the platforms only offer debt, others equity, and others, still a combination thereof. Further, some platforms only raise a small amount of capital whereas other platforms will not even consider “smaller” deals under $1,000,000.

Certain platforms are only open accredited investors¹ while other are open to all investors.

The company, business plan, and deal itself is going to ultimately determined the proper crowdfunding platform for your deal.

Here are some items to research before contracting with a crowdfunding platform:

• What are the sizes of the offerings on this platform? Are the offerings similar in size to your offering?

• Are they offering debt, equity, or a mix of the two?

• Has this platform ever successfully raised money for an offering like yours?

• Do you need to have previous experience to succeed on this platform?

• Does this platform have a large list of investors?

• What kind of investors invest on this platform?

Have Your Social Media Ready

Often, I like to look on crowdfunding platforms to see what new offerings there are out there. I can generally predict some of the offerings that will not realize success because they do not have their social media ready. Stating the obvious, crowdfunding platforms are on the web and therefore, your company needs to be on the web.

Currently, Regulation CF offerings on Form C’s may only be offered on the registered crowdfunding platform with whom they have entered a listing agreement. Regardless, companies that are looking to crowdfund under Regulation CF should still set up their social media to advertise their brand, products and services even if they can’t advertise their offering.

Investors like to do their own research, but only to a certain extent. Too much research would take time that busy investors do not have. A great way for investors to “research” without much effort is visiting the various social media sites and web address of the company which they are considering for their investment dollars.

Consider setting up the following:

• A Facebook fan page – do not be shy about promoting this page on your own personal Facebook page.

• A LinkedIn page – (see above about promoting)

• A Twitter Page

• YouTube Channel with videos about your company (include Google+)

• Depending on your industry or company: Pinterest and Instagram

It is important if you set up these social media pages that you tend to them. Provide content and engage your audience. This does not have to be time consuming and most certainly can be outsourced to an expert in social media – or a teenager.

Network

A big misconception with crowdfunding is that it is somehow magical: a deal is thrown up on a crowdfunding platform and it magically attracts capital. Not true.

Many crowdfunding campaigns are successful because of the previous networking and reputation of the company and its management. Therefore, I encourage you to go out and network with vigor. At the end of the day, your capital may come from mostly strangers, but you can always get the crowd into a frenzy of excitement by priming the campaign with people that are already aware of your brand, products and services.

Networking can take place online or in person. A huge part of the networking is to be sure to add value to the end investor prior to ever asking them to invest. Did you educate them? Intrigue them? Entertain them? Or did you just bore them or scare them with your sales pitch?

Some places to meet potential investors:

• Charitable fundraisers

• Country clubs

• In message boards on LinkedIn and Facebook

• Investor events and meetings like @CrowdConverge2017

With the exception of CrowdConverge2017, the purpose of this type of networking should not be to find investors, especially on the first meeting, but rather to meet people and build a rolodex of potential investors when you do launch your crowdfunding campaign.

Realize there is a cost of capital.

Currently, interest rates are very low. However, this does not mean money is easy to borrow. If anything has significantly changed since the Great Recession of 2008, it is how banks lend money and they do not lend to small businesses or new ideas, at all. So, getting capital from traditional sources is more difficult than ever.

This gives a great opportunity, along with changes in the law, for the crowd to get into investment opportunities that otherwise would not have previously been available. With this opportunity comes immense competition. As more crowdfunding platforms pop up, there seems to be no end to investment opportunities for the platforms.

Crowdfunding platforms, attorneys, CPAs, software providers, and other services all need to be paid to ensure that you have a successful campaign. You could, of course, provide these services yourself, but do you really want to take time away from your business to learn how to write an offering document?

How much is the capital worth? Think about this: a traditional broker deal costs about 10% to 12% of the total capital raised plus marketing fees, audit fees, and legal fees. Crowdfunding platforms are significantly less expensive. Now, the total costs of a successful crowdfunding campaign are approximately between 5% and 7% of the capital raised. Most times, the costs are NOT contingent on the success of the raise (at least in part) and therefore, it is essential that you budget ahead of the raise for the costs of a crowdfunding campaign prior to embarking on one.

Don’t forget to join us for more great strategies plus all the people that can make your crowdfunding dreams a reality at CROWDCONVERGE 2017. Get your tickets, updates, and agenda at www.crowdconvergecon.com

Find us!