Since the Jumpstart Our Business Startups (JOBS) Act was passed in 2012, we’re seeing equity crowdfunding become more and more popular. If you choose to use equity crowdfunding to grow your business, how can you attract investors?
First, you must find potential investors. This is where equity crowdfunding platforms come into play. These platforms help you publish business information, including a profile and business plan, and then browse through potential investors, engaging with ones you believe might be a good fit. This makes picking the right platform critical. Do your due diligence as you research platforms and find one that is the right fit for your venture. Keep in mind the type of investors you are seeking as well as the way the platform helps you interact with them. Certain platforms also attract investors with specific interests based on past successful campaigns.
Once you’ve found a pool of investors, what comes next? Read on for our best tips for bringing in investors with equity crowdfunding.
Have a solid, detailed business plan.
Every startup needs a thought-out, executable business plan. This is especially important when you’re looking for angel investors to purchase equity in your company. It doesn’t need to be long, but it needs to include the basics that an investor would need to know, without setting unrealistic expectations. Keep it simple, but still be thorough.
Think of your business plan as a “roadmap.” Outline the major points, but don’t get caught up in the details. Your business plan should inspire confidence in your investors so that they’ll feel confident about putting their money into your venture.
A business plan should include most or all of the following:
- Description of the business
- Ownership and Team
- Description of the Product or Service
- Features, benefits and key differentiators
- Plans for production, if applicable
- Product margins
- Industry and Market Analysis
- Major Players
- Marketing Plans
- Marketing goals and objectives
- Plans to meet goals
- Financial Data and Projections
- Annual accounting statements, if applicable (Income Statement and Balance Sheet)
- Pre-money Valuation
- Projected revenue
- Amount you need from investors
- What you’ll specifically use investment funds for
Show investors proof of the market.
Before you ever start soliciting investors, begin gaining traction and social proof. Having traction already in place will show potential investors that your startup is viable and provides real value to people or businesses. The type of traction to focus on varies according to your industry, but can include revenue growth, customers, average sales, average return visits, virality, partners, conversions, registered users, units sold and more.
Most importantly, though, create legitimacy through social proof. Bring on credible advisors, find customers and early adopters, and use a public relations expert to help you gain media coverage. When it comes to raising capital for your startup, there is no such thing as too much traction – in fact, the more traction you have, the more likely you are to find high quality backers interested in getting involved in your venture. Investors want to get behind something they can believe in, and they’ll be way more likely to put their faith in you when they see that the market does too.
Communicate with investors and potential investors often. Have a clear communication strategy in place from the beginning of your campaign in order to give investors all the information they need or want to know. Consider using a combination of social media, emails, meetings, reports and publications to keep your investors knowledgeable and involved. Don’t overwhelm them with information, but instead create a personal connection with each investor or potential investor to keep communication lines open.
Investor relations is a critical part of any successful venture or start up. You must stay engaged with your investors throughout the entirety of the campaign. Don’t underestimate the power of two-way conversation both before and after investors become involved. People who are considering investing money want to be sure they’ll be able to stay involved by offering guidance and feedback to the company. Make their role clear to them before they ever offer their financial support.
Create a prototype and beta test it.
A prototype offers validation and gives your startup credibility and legitimacy, and helps make your job easier after you’ve acquired capital. It gives you time to make any changes, reduces the time to production, and even allows you time to negotiate with vendors and distributors.
Even better: let people beta test your prototype. A successful beta test offers increased validation for your startup and shows potential investors that your idea is viable.
Whether you’re looking to create a product, build software or offer a service, you need to be able to show investors that you’re committed. If you can’t create a prototype because your startup doesn’t involve a product, find other ways to give yourself credibility. Consider creating mock ups of your software, or design an infographic to show off your service. Find a way to show investors that you’ve put thought into your offering and have it ready to roll out as soon as the financial side is in place.
Learn More About Attracting Investors
If you’d like more information about equity crowdfunding and how to successfully bring investors into your startup, contact us today.