A typical timing plan for an equity crowdfunding project
My work with Crowdsourcing Week as a content marketing creator and as an independent crowdfunding advisor has brought me in to contact with crowdfunding experts and thought leaders from around the world. We have talked about reward crowdfunding, equity crowdfunding, and crowdfunding being used by major corporates. I’d like to share some recent insights.
Lessons from 10 years of Crowdfunding in Europe
Christin Friedrich, CEO of the Innovestment platform in Berlin, is also Chair of the European Crowdfunding Network.
Key lessons learned at the ECN include the realisation that at whatever stage of a company’s growth, in addition to raising money, successful crowdfunding involves, builds and strengthens communities. Though in an increasingly competitive environment this requires expert communication skills.
An equity crowdfunding project should make it clear what it is asking for; what the organisation raising the money hopes to achieve; and who will benefit. Any funder can go on to become a customer, an advocate, or a supplier. So keep communicating after the crowdfunding closes, share news about your progress through achieving milestones or report on KPIs.
As well as improved professionalisation of all aspects of the process, regulations are adapting to crowdfunding being a global practice. Funds need to flow freely to encourage cross-border financing, though authorities have to be aware of laundering. European harmonisation through the ECN will ease cross-border payments from outside the EU – including the UK.
Evolving best practices in Reward Crowdfunding
New Zealander Nathan Rose is a crowdfunding strategist and author, his latest book is about reward crowdfunding. Across several years he has been able to track changes to what used to be, and what are now, the key factors for rewards crowdfunding success.
Crowd-building and effective communication strategies have definitely changed over the years. For example, these days, many more successful projects have used paid-for social media advertising.
Though project owners should not rely on purely virtual contact – he recommends getting out to events and meet influential people in person. Though beware of trade shows where more people are likely to be like yourself, looking for investment, rather than be potential backers.
PR efforts to crowdsource media coverage remain a valid activity, though not for the reasons you might expect. A published article is unlikely to generate much traffic to a crowdfunding project, though a collection of media logos is a strong endorsement of the viability of a project once site visitors see them.
Nathan also warned of a classic error. He still comes across project owners who calculate the production cost of the rewards they will supply, and set a donation value without checking the fulfilment costs to deliver the items. Seemingly successful projects can then sometimes incur a loss for the project owner, or are simply abandoned leaving many disappointed backers.
Nathan Rose’s latest book on crowdfunding
Tips for startup founders on running Equity Crowdfunding
Cheryl Campos, Director of Growth and Partnerships at the US equity crowdfunding platform Republic. Cheryl provided the article’s main image on a general timing plan for an equity crowdfunding project.
Before accepting an investment opportunity to put to its network of half a million investors, Republic uses four important criteria to evaluate startups: “The 4 Ts.”
Team
A startup funder has to have prior career and industry experience that adds up to a set of skills and expertise that can give investors confidence. But few investors will back a one-man (or woman)-band, and want to see a credible management team already in place, a team that has bought in to the founder’s vision of the startup business and have the ability to make a solid contribution.
Traction
Evidence of traction includes a passionate and engaged user base. Perhaps this has been achieved by an earlier round of rewards crowdfunding?
Technology
Is the startup’s product range superior to competitors? Or maybe their technology to make their products is superior, delivering a cost advantage. Are they following the sector’s traditional business model, or have they developed breakthrough innovations to shake up the established incumbents?
Terms
The terms a startup offers investors can vary, based on different methods of estimating a company valuation and with different classes of preference or voting shares, for example. It could make it harder to reach a financial target if crowdfunding backers receive poorer terms than other investors.
Corporate use of Crowdfunding
Esben Bistrup Halvorsen, Co-founder and CEO of Danish platform Lendino, gave a Crowdsourcing Week webinar some examples of major corporations using reward crowdfunding.
Sony has a co-creation and crowdfunding platform called First Flight, which operates within Japan only. It encourages entrepreneurial “Challengers” to propose ideas and suggestions for new products and services and allows them to canvass for input and support among a community of Sony fans and early adopters.
Fleshed-out ideas that have withstood this crowd’s scrutiny can then go on to a reward crowdfunding stage to check for demand to actually acquire the product or use the service. Where response from Sony’s First Flight crowd is strong enough to warrant investment, Sony makes the products and services available. Who knows, someone may come up with the best idea since the Sony Walkman!
Thinking about your own Crowdfunding?
In this most recent stage of my marketing career I’ve immersed myself in crowdfunding for the past six years. The crowdfunding projects you see hosted on any of the crowdfunding platforms are like looking at the 10% of an iceberg that’s visible above the water level. If you want to know the full extent of what has to be prepared to achieve success, let’s have a call. In the first instance please send an email to [email protected].