Raising money from equity crowdfunding investors is a different type of hard. In the world of entrepreneurial finance, backers are smart and quite discerning. Those who will back your company care about resolving the macroeconomic trauma that has prompted this need for alternative finance. The new fact that market acceptance trumps technical risk (for most offerings) means there are benefits of completing a successful crowdfunding round beyond just cash. There are, however, practical implications of this rise of the “presumer” (defined a consumer who interacts in different ways with a product pre-launch).
What equity-based crowdfunding investors think is important
We’ve been doing our homework, and we’d like to share some of what we’ve learned. Equity Crowdfunding Investors want to know something about the issuer, and its offering, much like a father wants to know about the boy who wants to date his daughter. It’s about the Why. Regardless of the ultimate lack of relevance for a pre-revenue stage company’s financial projections, investors like to see them in excruciating detail. The details of, and rationale for, a Company’s go-to-market strategy is of significant interest.
They also like to measure if the company’s social media activity is commensurate with the type of offering and size of the amount of funding requested. On top of all of that, the Cap Table and exit strategy need to be reasonable.
Choose well the funding intermediary
Our research shows a correlation between information about an opportunity available to investors and a funding intermediary’s ability to successfully attract investors who actually invest in companies, measured by what we have dubbed an intermediary’s “Catapult Score”. The higher a funding intermediary’s Catapult Score, the more funding will be provided to the companies looking to raise capital on their platform, the more likely you are to be successful in your fundraising effort. This seems to hold true in multiple geographies. Before applying, ask your crowdfunding portal what is their Catapult Score.
The equity-based crowdfunding pitch
The materials you provide to an equity crowdfunding investor should be accessible, professional, and detailed. You do not want to have reason to say after the fact “I should have made time to make it shorter”. Make sure that you maintain timely and high-quality interactions with everyone before, during and after your raise. If you have a pig, don’t put too much lipstick on it. Be honest about where you are. Embellishment will be sniffed out early.
Updated February 27th, 2017