While you may be passionate about your product or project, the fact is
crowdfunding platforms pick and choose the campaigns they host (especially for equity crowdfunding or Kickstarter). The good news is there are now best practices that can guide
you to a successful raise once you get past the gatekeepers. So how do you know if it
is worth the effort to apply or consider this route?
Well, all types of investors and many platforms that host the deals look closely at the
team and the team’s past experience, expertise, and prior exits, if any. Similarly, they
will consider market size, valuation, the securities you offer and evaluate your
ability to generate ROI and some form of an exit. You have likely heard these
expectations from other investors or pundits before.
However, there are 5 lesser-known but vital questions to ask yourself to help
determine whether to proceed or invest more energy in gaining traction:
1. Do you have your own crowd?
We are talking users, customers, followers, and advocates. High potential
crowds generally fall into two categories: i) online communities and ii) local
businesses with loyal fans.
Firstly, online communities with a user community nurtured for something
new or cool and, ideally, ongoing interaction with you on your upcoming
venture or a shared passion. Alternatively, local retail businesses like coffee
shops, craft breweries and one-of-a-kind experiences that have attracted a
loyal and engaged customer following.
Every successful campaign plan starts with the low hanging fruit or as the
platforms should tell you – ‘bring your own crowd’ as they will be your
biggest advocates and spread the word. While entrepreneurs expect there
are thousands of investors just waiting for their deal, the reality is the
platforms can amplify your raise, but you need to create the initial
2. Can you show something cool or real traction?
If you are pre-revenue then are you truly bringing in a first-of-its-kind
innovation or just another flavor? The investment community or backers
on sites like Kickstarter and Indiegogo will respond to being first in line for
something cool and new. Have 20+ people in your network told you they
want one when you are ready? Can you bring that to the table?
Even more critically, are you ready or nearly ready to ship? If not, committed
capital is at high risk due to failure to deliver or copycat products from
China. Prospects may wait you out if they think they can source from
Amazon shortly afterward based on their assessed risk.
Real traction means a growing user base (1000+), customers, significant
partnerships or revenues. Can you create a convincing investor story that
you will significantly increase the value of your business by maintaining your
current trajectory, not just being hopeful? If not, you’ve got some more work
to do before applying.
3. Have you raised prior capital or primed lead investors?
Investors are just like everyone else, they are happy to be second but seldom
comfortable with being first. In other words, if you can point to raising
capital in the past, friends and family, a seed round, or angel investors then
that skin in the game will shine through. On the other hand, if you are
putting your hand out for the first time and haven’t invested your own capital
why would anyone else invest?
Remember the Magic Three investor criterion – concept, team and return.
Sophisticated investors may expect convertible securities so make sure your
deal terms are clear. Of note, best practices call for consistent deal terms for
all investors – big and small – and to be very upfront on risk disclosure.
Issuers should also be very clear on the rights they are granting investors –
with rights come responsibility, after all, for you the issuer.
Even better than prior investment, if you’ve done the groundwork to line up
a lead investor or queued committed capital for your next round and can
bring that to the table the platforms will be all ears. The first few days and
week of a campaign are critical and the best way to move the needle is to
show momentum to de-risk the crowd from joining in. Who doesn’t want to
catch the wave?
4. Do you operate in a sector well suited to crowdfunding?
While there are exceptions, there are sectors that just seem to fit this method
better than others. We are not considering later stage established companies
here, as they may be able to consider debt-based crowdfunding, invoice
factoring or other methods.
What fits best? Goods not services. Hardware not software. Entertainment
not Industrial. Devices not pharma. B2C not B2B. Prototypes not research.
Cool creative projects not incremental change. Local retail with a crowd
(restaurant, craft brewer) or maker of unique consumer goods not business
That aside, there are certainly exceptions to the above. The fact is if you can
show real traction and a compelling ROI on your deal then take your story
5. Will your product change people’s lives?
Investors make a decision based on rational inputs: their comfort level with
the category, their belief in the team, market size and so on. They can also be
motivated by the emotional appeal of a product that makes a true difference
in well-being for a specific audience.
Does your project achieve social good?
Does it improve personal health or self-esteem, preserve the environment or
level the playing field?
If so, that can be the difference maker in both getting approved by the
platform and then getting the deal for the investor. Pull the heartstrings. Tell
your story and how you make a difference. Work the heart and the head.
If you’ve been able to answer yes to at least 2 of these questions then you are
well positioned to get a positive platform reception. If you answered yes to 4
or more, then you’ll be welcomed with open arms. If you said yes to 1 or less
then you are best to put your head down and try and move the needle in one
of these areas before you apply. Good luck!
Bret Conkin is the Founder of CrowdfundSuite – an Equity, Rewards and Real
Estate Crowdfunding consultancy. CrowdfundSuite provides campaign
strategy and management as well as white label platform development services
to help organizations profit from alternative finance strategy and
technology. Bret is an Ambassador to the National Crowdfunding Association
of Canada and a former executive with FundRazr. Learn more
about CrowdfundLand, their Real Estate Services arm, here. Bret writes
regularly about crowdfunding on this blog. You may follow him on Twitter