Policy & Law
Now Reading
Equity Crowdfunding: 4 Steps To Success

Equity Crowdfunding: 4 Steps To Success

by Erik P. WeingoldOctober 23, 2015

For small- to medium-sized businesses (SMEs) and early-stage startups, accessing capital is crucial. Whether the funding comes from a bank, an angel investor, a ridiculously wealthy family member, or less conventional methods, most businesses will need access to capital during various stages of their development. The problem is that banks really don’t lend funds to SMEs anymore, angel investors are tough to find, and not everyone has that wealthy uncle either.  So how can you grow your startup or scale your SME to new markets?

The answer could be in equity crowdfunding. This financing model has begun to change the landscape for how smaller private businesses can find the money they need. As the name suggests, with equity crowdfunding, companies raise capital through a web-based platform and access to “the crowd,” who offer money in exchange for equity.  This type of transaction comes within the legal purview of a private placement offering under the new JOBS Act Title II exemption.

Of course, just like any other solution for financing, there are strategies to follow and steps to take if you want to achieve the best results. Following are just some of the steps to consider when conducting your own equity crowdfunding campaign.

1) Make Sure That You’re Ready

Before you leap head-first into your equity crowdfunding campaign, it’s important to ensure that your business or offering is ready to take the plunge. Problems can quickly arise if an entrepreneur is not laser-focused and dedicated to his crowdfunding campaign, so make sure that you have more than just  confidence in your ability to succeed before you get started. Start by thinking about whether you already have customers lined up, or positive reviews to show off to the public. The aim should be to make yourself as attractive as possible to investors who likely have many other deals to look at in addition to yours.

You may want to invest in an accounting firm to help you work through financial statements in preparation for your private placement memorandum (PPM), and speak to your team about the kinds of steps you want to take during your crowdfunding journey. Rushing into a campaign before your business is ready can be a significant threat to your fundraising, especially if you decide to run another round at a later date. Rather than approaching the idea with impatience, spend some time evaluating yourself, and working out any issues that might arise.

2) Complete a PPM Document

It may not be the most exciting part of starting a new business venture, but having the right documentation in place can do wonders for the future of your company. A PPM discloses everything an investor may need to know about your business, so that they can make an informed decision about their involvement with your company. PPMs are important because they offer up all of the prescribed data for an investor in a single, professional package, ensuring that you and your company aren’t exposed to legal trauma in the future. In other words, a PPM provides you with a valuable sense of security.

3) Make a Video

Most of the time, people would much rather spend their time watching an engaging video than reading through pages of useful information. With that in mind, you shouldn’t go into your equity crowdfunding attempt expecting every investor to read through your complete business plan. Many investors will decide whether or not to invest in you depending on the quality of your video.

The video advertisement that you develop for your company or offering is your opportunity to show possible investors exactly what you, your product offerings, and your business is worth. That means that it should be full of passion, valuable information, and high-quality features. The more you pinch pennies on your video, the more chance you have of coming across as a bad investment. Be sure to show off your unique selling points, as well as your previous successes, market opportunity for scalability, and potential ROI.

4) Interact With the People Who Support You

Finally, make sure that you maintain constant communication with the investors who show interest in whatever it is you have to offer. The journey towards a successful equity crowdfunding campaign will involve a great deal of interaction in the form of thank-you emails, social media outreach, and frequent updates. You can increase engagement and build anticipation with the right communication, by conducting product giveaways and encouraging discussion between backers.

The more that you present yourself as a real person with passion for your business or offering, the more likely you are to encourage investors to share your excitement.

Make the Most of Equity Crowdfunding

Equity crowdfunding can offer a wide range of benefits to businesses over traditional financing solutions, with advantages that range from wider pools of potential investors, to more flexible fundraising options. However, getting the most out of this option means taking the appropriate steps towards conveying a successful business.

Are there any steps that you would recommend to people interested in starting their own equity crowdfunding campaigns? Let us know in the comments below.

About The Author
Erik P. Weingold
Erik P. Weingold
Erik P. Weingold is an entrepreneur and corporate securities lawyer with over 20 years experience under his belt. He has been practicing law since 1995, and since 1998 has been drafting PPMs that have been used to raise millions upon millions of dollars for startup companies and small businesses throughout the U.S. Erik is the founder and General Counsel to PPM LAWYERS.