A business thinking through the best way to sell a successful equity crowdfunding campaign should remember these two important points:
- Focus on your network. While the relatively new ability to advertise a local public offering to everyday investors (see Invest Georgia Exemption Guide) significantly expands a startup’s traditional investor pool, the reality is that the vast majority of funds raised comes from a business’s pre-existing network. In fact, recent reports show that only 6% of funds raised through equity crowdfunding come from strangers. While this percentage is expected to increase as this market matures, for now, a business considering an equity crowdfunding fundraise will get more bang for its buck if it cultivates the relationships it already has – rather than expensive advertising campaigns designed to attract potentially new investors.
- It takes longer to attract investors in an investment offering than Kickstarter backers. Based on my own experience helping companies close investment crowdfunding offerings and my observations of the industry and consumer behavior, converting an investor takes significantly longer than converting a backer in a rewards crowdfunding context. This distinction shouldn’t come as a surprise, since the Kickstarter mentality functions on novelty or consumer appeal, which is driven by the desire for instant gratification, while investing creates a more long-term relationship – often governed by complex terms that take folks a while to comprehend. Nevertheless, it warrants pointing out to businesses who come to an equity crowdfunding transaction with the false confidence created by a successful Kickstarter raise. If your strategy is to close a deal in 30 days, or to generate traction by immediately moving the funding needle, be mindful of the fact that an investment transaction is a different animal – even if it has the word “crowdfunding” after it.
If you are interested in more detail related to your situation it is best to speak with an attorney.
Megan K. Johnson is a business lawyer with over 7 years of experience. She helped champion securities crowdfunding at the local level and worked with the first company to successfully close an equity crowdfunding involving everyday investors. She is a partner at Founders Legal and can be reached at [email protected]
Source: Smartup Legal