What you need to know about Equity Crowdfunding as a founder

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By Score 3 Fellow Yvonne Okafor

So, you've got a great idea and a great team, but now you need to raise money to move this from the idea phase to the working product phase. What's the best way to do this?

There are many options to choose from when it comes to raising money to move onto the next business phase. You can get money from friends and family, pitch to an individual angel investor, pitch to an angel fund, or if you've had enough traction, you can move onto a Venture Capital fund. All those options are great, but another funding means that's gaining popularity is through equity crowdfunding.

What is Equity Crowdfunding?


Equity crowdfunding is an alternative means for founders to raise money for their businesses, and it's exactly what the name implies - a means for a crowd of investors to fund start-ups in return for a stake in the company. By having this process on an online platform like Republic.co, startups gain access to an investor network that they may not have otherwise had while also being given an extra platform to market their products to their target audience. As this means of raising funds gains popularity by the day, many start-ups are opting for it because of the flexibility it provides for them and for the fact that they can also gain customers from the exposure their campaign gets. Most funds invest in as little as three companies per year; therefore by running a crowdfunding campaign, it gives start-ups a greater chance of getting funding to push their business to the next level, in comparisons to the slim chance of being one of the chosen ones every year.

If this is a means that you're considering, here are a few things to pay attention to when setting up your campaign.

Prepare a solid Business Plan


For people to be interested in what you have to offer, they have to understand your business, hence the business plan. Before starting your campaign, make sure you have a clear outline of your business idea and how you make money because that is what is going to sell your investors to your business and have them want to invest in you for them to see a return in the future.

Be clear on how much are you asking for and how you will use the money. Something investors like to know is to what part of your business is their money going and how it's going to be spent. Is it going towards product development, building your team or marketing? Another thing they like to know how much they're contributing in relation to others, so it's important to make that information available.

 

Make sure you know which investment instrument you're using


What kind of investment instrument are you using to make this deal? Is it a safe that's being used or are they getting a portion of equity from the start or two years later? Make sure you outline this clearly on your crowdfunding page to avoid any confusion in the future.

When will investors see a return?


Although investors have an idea that investing is a long-term game, this is something they still like to know when they're putting money into anything, so it's important to have this outlined clearly on your crowdfunding campaign page. Unusually, crowdfunding platform has a general rule of when investors are to see a return like Republic.co notes that investors gain a return when a company exists, but in the case that they don't, make sure to note if they will be waiting for an exit or a few funding rounds in the future.

 

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Yvonne Okafor is a Nigerian national and an Alumni of American University where she completed her Masters in Finance from Kogod School of Business. She has a passion for International development and Alternative Investments, striving to one day be a Partner in her own Venture Capital Fund investing in social enterprises that focus on the development of the African Continent. When she’s not working, Yvonne enjoys reading, writing, traveling and helping people. She has a goal to travel to 30 countries by her 30th birthday. Learn more about her on LinkedIn and Twitter!

https://www.linkedin.com/in/yvonneokafor94/ 

Twitter - @yvonneonyebuchi

 

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