Startups and companies looking for investors have a tremendous opportunity when it comes to equity crowdfunding. Here's what you need to know to attract investors.
Companies looking for investors often have to battle hard to get a meeting with investment firms. This process can take up to 15% of your precious time.
Even once you land that first meeting, you're not out of the woods. Investors may make it quite clear that they're not interested during the meeting. Your behavior can backfire as well.
This is why companies looking for investment may want to consider equity crowdfunding as an alternative. Equity crowdfunding lets people put their money and faith into your venture without the need to beg investors for a meeting.
What are the key advantages of equity crowdfunding?
How Does Equity Crowdfunding Work?
'Normal' investment firms will give you a lump sum of money in exchange for a share in your business. Let's say they give you $500,000 for a 25% share.
Equity crowdfunding lets you advertise your business online to lots of different people - both professional and personal investors.
You're still looking to raise $500,000 in exchange for a 25% share, so you push as hard as you can through PR and marketing efforts to raise awareness. 500 investors put in $1,000 each, and in return, each investor takes a 0.5% equity share in your business.
In reality, things won't be so 'neat,' as people can invest different amounts and you may even find that you exceed expectations and take a lot more money than you're aiming for.
Global online crowdfunding raises over $5 billion a year for various firms, startups, and charities. So if you're struggling to raise finance another way, or think your idea would do best pitched to the masses, it's worth looking into.
Reach a Global Audience
Your small business in Seattle may not yet realize its global potential. Online equity crowdfunding is a great way to tap into a much broader audience at a very low cost.
Head online and crowdfund, and you may be surprised by the reaction from around the world.
Companies looking for investors can benefit from the geographical 'spread' of their investment base. For example, a product might catch on elsewhere even if it doesn't do so well in your home country.
This will provide you with the investment you need and will offer valuable direction on where your target market is likely to lie.
Equity Crowdfunders Become Brand Advocates
Equity crowdfunding gives personal investors access to buy into your business. Companies looking for investors will find that it's these people who become huge brand advocates.
Traditional investors are on your side if they decide to invest in your business. But there aren't enough of them to spread the word in the world outside the investment industry.
Smaller investors have the time to talk about the business with friends and associates. And you should never underestimate the power of a word-of-mouth recommendation.
Setting Up Without Traditional Help
One of the best things about equity crowdfunding is that companies looking for investors don't need to have loads of cash to spare, excellent connections, or even know the right people.
You can also avoid spending ten weeks fighting for 10 minutes in the schedule of an extremely busy investor.
If the product is good and can capture public enthusiasm, you may not need to rely on professional investment support at all. Investors will be pleased to put their money in via the online platform.
Don't write off angel investors for your business if you think the traditional route won't work out. A killer pitch can land you a valuable long-term relationship.
As angel investors ourselves, we're especially very keen to hear from you if you've got a great nascent business and are female or part of an ethnic minority.
But the crowdfunding equity model is a great leveler. The success or failure of your campaign can give you a good idea of how well the product would succeed in the market. You may need to tidy up a few corners and return later if you're not successful first time around.
Investors and Exit Strategies
On the day a venture capital firm pours money into your firm, it already has an exit strategy planned out.
For example, it might expect that in three years time it will set up an IPO and run. Or perhaps after a year of growth, it'll already be floating the idea of a sale to a private equity group.
Venture capitalist firms are very interested in the success of your business for as long as they're involved in it.
Equity crowdfunding investors, meanwhile, are regular people who might be diversifying their investment portfolio for long-term reasons. That might be to support their pension or a long-term savings plan.
The smaller amounts of money they're contributing will deliver returns not worth realizing for a longer period, so you can count on their support for longer.
But you can still raise the volume of money you need, because you have a 'crowd' of people who all put a smaller amount of money in, rather than raising one lump from one investment firm.
For Companies Looking for Investors
If your firm wants to give investors the chance to take a stake in your business, come and talk to us.
Score 3 Angels focus on investing in entrepreneurs from backgrounds who have historically struggled to get the financial support they deserve.
We're different from other investment firms in that this ethos means we want to do what's right for a strong society. In the same breath, we want our portfolio of business interests to beat the competition. We'll be here to offer support and guidance for all businesses we invest in.
This creates what we see as a 'win-win' situation for you, for us, and for society as a whole. Get in touch with your pitch - we're waiting.