Equity crowdfunding is the process of offering a proportion of your unlisted business in exchange for financial investment. Essentially, you are selling shares in your company so that if you do well your investors will profit, but if you fail, your investors may stand to lose some or all of their money.
It used to be the case that only wealthy angel investors and venture capitalists could invest in start-up companies, but the rise in equity crowdfunding platforms has made the investment landscape more accessible to a wider range of people. These investors are the ‘crowd’ who will ‘fund’ your venture. To incentivise investments in your equity crowdfund, you must launch with a robust financial offering, and a long-term view that involves managing a number of potential risks.
Why launch an equity crowdfund?
Arguably, it is a higher risk for investors to support equity crowdfunds over others options, e.g. rewards-based crowdfunds where you are offered a tangible incentive, or bonds where your money is secured. With equity crowdfunding, there is no guarantee that your company won’t lose capital, liquidise, or be able to pay dividends to your investors.
But of course, there are the benefits that for many investors will out-weight the risks when deciding where to put their money. Often, investors are attracted to equity investments as a way to engage with the next generation of start-ups. A recent Nesta report that studied 1,080 angel investors over 10 years found that investors received an average 22% internal return rate, meaning an average investment increase in value of 22% each year.
How to attract investors to your equity crowdfund
For most people investment isn’t a sexy topic, and it can be hard to attract the attention of new audiences to your crowdfund. With that in mind, the way you promote your crowdfund is key to securing investment successfully.
Sure, there are risks, but if your investors believe in you and your business, their belief in your potential for success should override those fears. View the launch of your crowdfund as you would the launch of any other product, with a killer marketing campaign, social media and influencer push, and a communication strategy to target your audience and new investors. Don’t make it exclusive. Remember that any amount of investment is a help to you, and the more people you get on board, the better.
Consider your strategy
Don’t underestimate communication as a key driver in attracting investment. Who are your target audiences, and how will you make sure your message reaches them?
You can go to press, but they may not write about your crowdfund. Alternatively you can post on social media, but you may not appear in people’s feeds. You can generate newsletters and e-shots, but your open rate is unlikely to reach 100%…
How do you get around these odds? By doing them all!
Email communications are a good place to start. Create a targeted and well-planned campaign with clear calls to action, so your audience knows exactly what you want from them. It’s the most personal and direct way to communicate with anyone that might be interested in supporting your company, so consider the best way to appeal to their needs, and reach the widest audience.
Digital marketing is also a good way to overcome local bias, which is prevalent in investing circles. Local bias affects diversification, but the tendency for investors to keep their money domestic, and perhaps even in their own cities, isn’t always a conscious decision. It is a natural result of the market they’re exposed to, and a want to support businesses where they more fully understand the risks. However, a strong digital marketing campaign can overcome this, especially if you’re hitting a niche audience.
Look to the winners
A clear champion of equity crowdfunding is Brewdog, whose ‘Equity Punks’ crowdfunding round, launched in 2010, has seen over 75,000 backers invest from as little as £47.50. Now, Brewdog is planning to float in 2020, and investors are looking to gain a 187% return.
Still confused? Not to worry, OggaDoon’s crowdfunding package can do the hard work for you. Our team of experts will pull together a top-notch campaign with your target audience and target raise in mind. Get in touch today to find out more.