This is a guest post by Ricardo Sequerra, startup community builder at equity crowdfunding platform Seedrs
Equity crowdfunding is a new way for startups to raise funds by allowing the crowd to buy shares in your business. Besides the capital raise, there is more value-add for your startup in an equity-crowdfunding round. Understanding and taking advantage of the additional benefits can not only increase the likelihood that your crowdfunding campaign will succeed, but also have long-term positive effects for your business.
Looking beyond just raising money, here are five ways equity crowdfunding could be just what you have been looking for to further contribute to the success of your startup:
1. Efficiency
Offline fundraising can be quite an inefficient process when you are gathering commitments from different investors. An equity crowdfunding platform gives you a means to drive your offline commitments online, making fundraising both faster and more efficient.
Imagine you have several pre-commitments that are driven to your online campaign. This creates valuable momentum and validation behind your funding round that you can use to attract further online investors.
2. Community building
An impactful way to gather support for your equity crowdfunding campaign is to reach out directly to your already existing users or customers. These are the people who use and care about your product. They will want you to see what you have built evolve, improve, and ultimately succeed.
Having product advocates will be important when you are building your brand and your user base. By inviting your advocates to invest in your business, this sense of loyalty will only grow stronger. Forum technology startup Microcosm used this tactic during its equity crowdfunding round on Seedrs and saw amazing support from its users: The startup raised £100,000 (about €127,000) from its users in two and a half hours.
3. Value chain lock-in
Don’t stop your outreach after contacting your users. Your entire value chain including suppliers, vendors and other partners will be an important resource for your equity crowdfunding campaign as well. When your external stakeholders have a vested interest in your business, you’re creating a long-lasting bond with them. This will increase your competitiveness in the market, boost your brand awareness and build up your networking effect among people who already know and support you.
Blue Crow Media, the app publisher startup behind London’s Best Coffee app, learned this when the team shared their equity crowdfunding campaign not just with their app users but with coffee shop owners, baristas, coffee shop wholesalers – even the customers who drank the coffee at the shops. Because they involved the whole community in their campaign, they strengthened their brand awareness and now, if there is a new coffee shop in London, it is most likely to show up in the Best Coffee app first.
4. Publicity
Equity crowdfunding is an open-ended, transparent way of raising funds. As opposed to small investor meetings and demo days, your online campaign opens your business to the crowds. The result is an effective way of generating word of mouth, acquiring users, selling your product and getting press.
5. Validation
An equity crowdfunding round can help validate your idea to determine if you are actually working on a product that people want and find valuable. Just ask Fuzmo founder Elliot Thomas. He created an Instagram account that featured cute pets and animals and gained more than 1.5 million followers after only three months.Thomas thought that if his Instagram account had more followers than Miley Cryus and 50 Cent combined that he may have a business on his hands.
To test if the app would be something people would want, the team at Fuzmo created an equity crowdfunding campaign which successfully raised £55,000 (€70,000). Fuzmo started driving traffic from the Instagram account to its app as soon as the product was completed.
Studies show that PR, networking, and validation are the top non-financial reasons why entrepreneurs choose to leverage crowdfunding platforms. If you or your business have considered equity crowdfunding as a viable option for your business, perhaps these additional benefits may be just what it takes to make the leap into the crowdfunding arena using one of the new and rapidly growing platforms such as Seedrs.