It all seems so simple. Equity crowdfunding is seen by many as an exciting, relatively straightforward method of raising capital for high-growth private companies. And everyone appears to be jumping on the bandwagon.
Decide your goal, design your investment website, share it on social media and keep your fingers crossed it gains traction and the money starts rolling in.
But the basics are only the tip of an iceberg where having an intricate and comprehensive marketing and communications plan in place is not only preferable, but increasingly essential. And you cannot go into it under prepared or under funded in terms of your marketing.
Without it, experts warn, your hopes and dreams may sink without trace. Hope is never a strategy.
And that is backed up for the figures. According to a report by SkyQuest Technology Consulting, it is estimated around just over 50% achieve their targeted goals. Which leaves an awful lot of private companies raising capital through equity crowdfunding wondering what went wrong.
Paul Stannard, chairman of the World Digital Foundation – an international marketing, communications and investor data company, which has a strong track record in delivering equity crowdfunding results for its clients, says: “It doesn’t happen just by luck.
“You need significant money to get a sustainable marketing and communications plan off the ground. But you must keep adding marketing fuel/budget to fly high enough to reach a relevant audience often with a simple resonating message that drives investment.
“Many also subscribe to a one-size-fits-all approach. But no business is the same. They all have to have a unique point of difference to succeed. And that has to be clear in their messaging.
“You can apply the three key marketing principles of reach, repetition and message but you also have to understand the audience and data sets needed to resonate with investors.
“Each equity crowdfunding raise needs to be approached differently with the nuances that connect with your target investors and that takes careful planning and execution.
“Especially as there is so much competition out there today for investment; you need to stand out from the crowd and make it clear why what you’re offering is a compelling proposition.”
More than 4,000 companies used Regulation CF and Regulation A+ equity crowdfunding in 2022 which is more than double that of two years earlier.
From co-ordinated social media platforms to securing media coverage; building profiles and investor data to holding online webinars, a successful equity crowdfunding raise takes time and ongoing investment.
Adds Paul: “You need to build up credibility, identify elements of the start-up’s story which will strike a chord and, most importantly, be aiming for a realistic target amount with a credible business strategy to underpin it all.
“Also you need to look at your online presence – are you easy to find? What is your reputation online? Does your website have a disconnect and look like an ugly second cousin when it really needs to resonate and connect with investors who want to believe in your mission.”
Equity crowdfunding, buoyed by the US market entering the space following the JOBS Act, has ballooned in popularity over recent years.
Regulation CF allows for raises of up to $5 million a year, a Regulation A+ up to $75 million a year.
According to new research by Statista, global spending on equity crowdfunding will top $17.8 billion by the end of 2023 – up more than 15% on 2022 ($15.13 billion) and a staggering 189% since 2020.
It is expected to reach nearly $43 billion by 2028.
But while the method is proving a hit with investors and private company issuers, those seeking funding need to not forget the work that needs to go into any campaign in order to be counted among the success stories.
Michael Jansen, chairman and CEO of digital twin technology firm CityZenith, adds: “Raising capital this way is not for the faint of heart. It can be very expensive and painful if not managed and controlled with a marketing and communications partner who has walked this path successfully before.
“Key for us was ensuring all our ducks were in a row before we pushed the button to go live.
“We learned the hard way that we had to be better prepared and invest consistently across a number of media and marketing channels as well as events.
“Identifying our audience, getting our message across and sustaining interest levels for a prolonged period put us in a great place, not only in terms of raising investment from the crowd but positioning us to larger institutional investors and strategic partners as we move forward.”
Concludes Shari Noonan, CEO and co-founder of broker-dealer Rialto Markets, which assists with the technology for many equity crowdfunding raises: “As a broker dealer we concentrate on the infrastructure and regulatory framework.
“We’ve learned a lot in recent years. You have to have all this in place but if you don’t have a marketing plan and budget to sustain it, then it will be very hard to reach your investment goals.”