With crowdfunding blowing up, in a good way, more and more entrepreneurs are considering jumping on the bandwagon. But before you upload your product video and hit the launch button on your campaign, there are some things you need to know. Traklight CEO Mary Juetten shared her insights during our Safe Crowdfunding: Tips For Your Campaign webinar.
Preparing for your crowdfunding campaign
- The first thing you need to do is to get all your ducks in a row. If you follow breathless media accounts of campaigns that went viral, you might think that the secret to runaway success is luck. That can have something to do with it, as does timing, but really laying the groundwork for a successful campaign involves taking specific steps.
Before you go public with your campaign, you need to identify and protect your IP. Some things, like putting simple copyrights in place, are straightforward enough for you to do on your own. Others, such as patent applications are best left to the professionals.
Why is this important?
Many platforms, whether rewards-based or equity-based, require online disclosure of how your product works and a copy of your business plan. Not protecting your confidential and proprietary information exposes you to theft—and could significantly damage your business.
Equity-based crowdfunding or rewards-based crowdfunding?
Next, you need to pick a crowdfunding platform: including deciding whether you want to go with a rewards-based or an equity-based site.
A bit of background…
Though it was passed three years ago, the 2012 JOBS Act is still pending while the SEC determines final rulings to implement Title 3, which covers the equity crowdfunding portion of the legislation. The JOBS Act will allow companies to raise a maximum of $1 million in any one year. In the meantime, 20 states have legalized equity crowdfunding.
Deciding how much equity to give up
Now that you understand the parameters, how do you decide how much equity to give up? Start by working backward from how much your company is worth. Then figure out how much control you are willing to give up. Most founders understandably, want to limit this. Lastly, consider how many shareholders you want involved in your business. Too many small shareholders, silent or otherwise, can both a distraction to you and a deterrent for potential investors.
Choose the best crowdfunding platform for your business
There are lots of sites, but the most well-known are IndieGogo and Kickstarter. There’s also
RocketHub, a number of peer-to-peer lending sites, and sites like AngelList that specialize in connecting startups with accredited investors.
Some sites, for example, Kickstarter, are all or nothing. That mean you don’t have to pay anything (for fulfillment) until you meet your goal. Others, IndieGogo for instance, give you the option to keep whatever you raise. But those sites levy a higher fee to take advantage of that option. And remember, even if you don’t meet your full/minimum raise goal, you are still on the hook for fulfillment. So be very careful to calculate your costs before committing. Do not overlook the tax and accounting implications of crowdfunding as well.
Strategy for your crowdfunding campaign
Before you start your campaign, get pre-commitments from supporters.
Choose a catchy name
Build social capital as a way to prime the pump. Yes, social media has a big role to play, but you need to do more than that. Become known as a thought leader by contributing to, and commenting on, influencers’ blogs, speaking at events, and promoting your own high-quality content. Focus on building quality networks and relationships. Create content around your campaign starting 90 days before you plan to launch. Use social media and product giveaways to build excitement and enthusiasm.
Create a great crowdfunding pitch
- Your pitch has to be professional and it has to look good.
- Videos should be short
- State the problem, state the solution, make your ask and connect the dots by tying your fundraise to milestones (i.e., your first production run).
Lastly, don’t make rookie mistakes. Read the fine print and make sure that you understand the terms of the platform. One way to attract the wrong kind of attention is to infringe someone else’s IP. Get permission to use videos, photos, and other works. Ignorance is not a defense, nor is it bliss. Mistakes in this area can be very costly.
Do you have crowdfunding wisdom to share or need help getting your (financial) ducks in a row? Ask us in the comments section below or contact Early Growth Financial Services for a free 30-minute financial consultation.
Deborah Adeyanju is Content Strategist & Social Media Manager at Early Growth Financial Services (EGFS), an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. Prior to joining EGFS, Deborah spent more than a decade as an investment analyst and portfolio manager with leading financial institutions in New York, London, and Paris. Deborah is also a Chartered Financial Analyst (CFA) charterholder.