There is a temptation with equity crowdfunding to believe everyone is a winner.
For investors, it opens up the opportunity to get in on the ground floor of an exciting new company with high-growth potential.
For entrepreneurs, there’s the lure of securing the capital required to get their plans out of the starting blocks and racing towards a bright, profitable future with the reins still very much in their own hands.
What’s more, with the levels of money invested, the knock-on economic impact can be significant too.
According to Crowdfund Capital Advisors’ 2022 Annual Report on equity crowdfunding, money invested so far in such ventures in the US is supporting in excess of 226,000 jobs while ploughing $4.8 billion into local economies.
All good, right?
Except while the potential of a well-executed campaign can indeed deliver on all fronts, plenty of ventures will try but fail to reach the targets they set themselves.
Jeff Bartel, chairman and managing director of Miami-based private investment and strategic advisory firm Hamptons Group, recently said: “Equity crowdfunding has become so popular that one estimate suggests more than 50% of campaigns successfully meet their initial goals, and 78% [of those] can generate enough funds to exceed their goals.”
However, another source believes that success rate is closer to a third – with a third getting somewhere toward their target and the remainder coming up well short.
Explains Paul Stannard chairman of the World Digital Foundation, an international marketing, communications and investor data company with a strong track record in delivering equity crowdfunding results for its clients: “It’s quite simple - only a third lay the foundations for success and back this up with a marketing and communications strategy that builds trust and engagement so that you can deliver, in the long-term, a self-financing equity crowdfunding campaign.”
More than 2500 private companies filed for Regulation CF and Regulation A+ equity crowdfunding in 2022 according to EDGAR SEC Filings - double that of two years earlier – yet only a quarter raised more than $1 million.
Regulation CF allows for raises of up to $5 million a year, a Regulation A+ up to $75 million a year.
The reason many don’t secure seven-figures goals more often than not comes down to an investment of a different kind.
Adds Paul Stannard of the World Digital Foundation: “Having a strong proposition is one thing – but having an equally compelling, broad, strategy to deliver that funding is something else.
“To have the best chance of achieving your equity crowdfunding investment goals you need to invest in your strategy before you launch and then continue feeding it during the process.
“From having a clear, concise fundraising landing page on your website to identifying and acquiring the data to ensure you are targeting the right audience, it all forms part of a complex marketing strategy without which you’ll struggle to succeed.
