Photo Credit: CFO Wise
Traditional methods of raising capital are antiquated, inefficient, and extremely time consuming. On average it will take an entrepreneur anywhere from 3 – 6 months to close a funding round. But with capital raising and investing now available online (via crowdinvesting), everything should be faster and easier right? No more scouring your network in search of wealthy individuals who might be interested in investing, spending time trying to get introduced to angel investors, cold emailing or cold calling angels/VCs, and applying to angel groups for a chance to pitch your idea.
With crowdinvesting, you can now simply post up your video and offering details on the internet, and voila, the money from investors will start flowing in right? All you have to do now is sit back and wait for the investments to come in. Yes, raising money online will allow you greater access and reach to investors, but here’s why you can’t just sit back and expect the money to flow in without putting in the necessary effort to make your campaign successful.
Myth: It’s less work for startups to raise capital with crowdinvesting.
Reality: Here are 3 reasons why entrepreneurs need to stop thinking that all the work is cut out for them if they use crowdinvesting.
(1) Greater reach to investors does not equate to less work.
The idea behind a crowdinvesting platform is that it serves as a medium by which entrepreneurs can post their ideas online, and investors can view and eventually invest in the startups they like best. So for entrepreneurs, by posting their startups online, their visibility and reach to investors significantly increase. This however does not mean that entrepreneurs can and should stop talking to investors on the ground. An equity crowdfunding platform is not some magical place where swarms of investors will come and invest in your startup.
Think of dating sites that exist today. Your life is so busy with work and activities that you find it difficult to meet new people and date. By posting your photo & profile online, you now have exposure to hundreds, if not thousands, of new, potential partners you previously didn’t have access to. Your circle of potential new dates just expanded exponentially! But if you don’t make the effort to reach out online to those you’re interested in and ask for a date and figure out if you want to see that person after a few more dates, the chances of you finding a partner is still the same as what it was before you joined the dating site. Whether you’re looking for love online or you’re looking to raise capital money online, nothing good comes easy.
At the end of the day, entrepreneurs must get rid of this misconception that they can stop spending time reaching out and talking to potential investors once their startup profile is online. Equity crowdfunding platforms provide greater reach to investors but entrepreneurs still need to do work on their end.
(2) No one wants to be the first one on the dance floor.
While crowdinvesting is vastly different from donation/rewards-based crowdfunding, one thing we’ve learned from the latter is that the first 20% to 30% of a funding target is usually funded from individuals within the entrepreneur’s own immediate network. Not some random person, but from friends, family, and existing contacts. And once external viewers see that the project has some momentum, they’re more likely to join in and donate. It’s an element of social proof.
This is also why entrepreneurs using crowdinvesting need to be talking to investors on the ground and get the momentum growing. If you can’t even get several investors to invest in your startup after pitching them in person, what makes you think it’s easier to raise money online? Get some investors you know to invest in you and get the momentum going, because no online investor wants to be the first one on the dance floor.
(3) Constant communication and transparency are key.
By now entrepreneurs have heard that the success rates of those projects on donations/rewards-based platforms such as Kickstarter and Indiegogo are actually quite low. But what about those winners? What did they do so right that they were able to get funded? One was already mentioned (point #2), where they kicked off the momentum by reaching out to internal networks. Another reason is that these entrepreneurs maintain constant communication and transparency about their latest updates and progress. While a startup is in the process of raising capital, surely there are new things to talk about right? While you’re listed on a crowdinvesting platform, provide progress updates so that investors who are coming to the platform and seeing your startup will know that you are active. Tell them about your milestones while you achieve them. This is sending a message to investors that you are alive and kicking, and actually working on your business.
Taking someone’s money is never easy and while crowdinvesting platforms will serve as great tools for entrepreneurs to reach a BIGGER POOL of investors, there’s still a lot of work that needs to get done on the entrepreneur’s side.
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