Equity Crowdfunding 101
By Emily Gale, Merrick Creative Equity Crowdfunding Partner
Equity Crowdfunding is a type of financing that involves raising capital online from investors in order to fund a private business. In return for cash, investors receive equity in the business. The process happens on online platforms where businesses create profiles that include their pitch, financial statements and additional information. Unlike other types of small business funding, equity crowdfunding has no debt component. Rather than making payments toward a business loan, you sell shares of ownership in your company to investors.
Equity Crowdfunding provides a unique opportunity for companies to gain funding. Using one of the verified SEC-approved platforms available, businesses can share their mission with individuals looking to invest in companies they believe in and obtain investment without giving up as much control. Pre-launch you can determine the perks and returns as well as specifically how much involvement your company is prepared to give once the goal is met. Depending on your campaign, people can invest in your business for as little or as much as you set, from a few hundred dollars to upwards of tens of thousands.
This is more than just an opportunity to gain the investment you need to grow, it’s a powerful opportunity to get more information about your business to people who are deeply interested in what you’re doing, who will buy from you, advertise on your behalf, and show continued support.
In today’s digital landscape, connecting with consumers in a meaningful way is more important than ever. People want to invest in companies, brands, and projects they believe in and feel strongly will make a difference in their lives. Offering people the opportunity to feel like they are actually a part of your business is one of the strongest ways you can gain funding as well as lasting support.
These campaigns can also be paired with other forms of investment that you may have already done or plan to do in the future, such as VC, private equity, or other crowdfunding campaigns. Thus, making it a good step throughout your company’s growth. Many companies also find a valuable Angel Investor or a supporter that has the resources or connections they deeply need. And lastly, this can be a great opportunity to work on business development and implement other projects you have on the horizon by capitalizing on the increased marketing push and reach.
Who is a good fit for Equity Crowdfunding?
Equity Crowdfunding is not a good fit for every business or every stage. If this is not the best path for you right now, we may be able to help you with alternate solutions or work to get you to the point where this is optimal. Businesses that are the best fit are ones that can get people excited about what they’re doing, have defined goals and growth trajectory, a strong leadership team, and a value that will persist. Consumers are excited by businesses that have a mission they believe in, a product they want to see on the market, or simply ones that they believe have high earning potential due to the strength of that industry. Companies with a strong network of supporters, mailing list or social following are also in a good position to succeed.
Participation in these online campaigns also requires you to be open and honest with investors as well as comply with all SEC guidelines. It’s important to be able to clearly illustrate the goals of your company, past or current points of success, and how you will spend the money earned from the campaign. Potential investors will look for the following:
The background of your company: how, when, and why you got started.
What is your mission statement?
A roadmap for the future and specificly how you plan to grow with these funds.
Demonstrated success to date.
What is holding you back?
Financial data.
A strong leadership team.
Market research and information about competitors.
Why hire a consultant?
Hiring a consultant for crowdfunding ventures is crucial for maximizing success. While platforms offer basic campaigns, relying solely on the platforms' internal teams can be inefficient and may lead to lower funds raised. A seasoned team of consultants can help you navigate the complicated process and tailor strategies to your needs. By offering a fully comprehensive service including strategy, compliance, marketing, and campaign management, this will save time and frustration and ensure higher funding goals.
The key is a holistic approach that not only helps assess your business and determine valuation and growth projections but also create a compelling investor pitch and collateral package. A great consultant will make sure that the campaign works positively for your business and you’re in the best position to meet your funding goals.
What can you expect from this process?
Once it is determined that your company is a good fit for Equity Crowdfunding, a plan is created and you choose a platform, there are a few components that will go into a successful campaign; it’s important to understand the complete process and prepare your team so that you make the most of this opportunity and abide by all legal requirements.
Each client that works with us will receive a customized campaign plan based on their company’s needs that is broken into three phases:
1 – Onboarding
Learn about your company and your goals.
Compile and review initial financial reports and data.
Complete a brand audit.
Discuss any possible new initiatives or projects.
2 – Campaign preparation
Complete projections and financial data.
Decide on investor perks.
Create initial content
Compile pitch including all copy, images, graphs and videos.
Plan ads and digital marketing campaigns.
SEC review and approval.
3 – Launch and maintenance
Go live online and share with the public.
Engage with potential investors on social media and on the platform.
Continue to report to investors and build hype by announcing updates on your progress.
Fulfill any perks or merchandise orders by investors.
Marketing an Equity Crowdfunding Campaign:
The key selling point for a successful campaign is to identify what will get people excited about what you’re doing in order to drive them to want to be a part of it. It’s important to focus on the aspects of your business that will make it stand out on the investment platform. Founder stories, societal or environmental impact, customer pain points, and market data are all important factors that can draw in investors.
Once you decide to launch a campaign and identify the aspects of your business to highlight, you can also think about what goals or exciting projects you have for the next few years that may be exciting to investors. You can either list these as future goals to build hype or you may consider going forward with them either alongside or directly after the campaign to capitalize on the increased press and excitement.
Bottom line, an Equity Crowdfunding campaign ultimately can serve two important roles in growing your business. First, it is an incredible tool to raise significant capital with investors who also believe in your business. And secondly, in the process of attracting investors, you are also broadening the marketing reach of your potential customer base. Not everyone you reach will be prepared to invest, but they may be willing to purchase your product or service.
Interested in learning more?
Merrick Creative’s Equity Crowdfunding Solution is an end-to-end turnkey solution where we partners with you throughout the process to (1) Access if your business is a good fit for an equity crowdfunding campaign, (2) Design your Equity Crowdfunding campaign roadmap and (3) Execute the campaign with you from start to finish.
