The Basics of Equity Crowdfunding Sites for Startups

Marinna Kus
Jul 28, 2018 · 3 min read

When most people think ‘crowdfunding,’ they think of Amanda Palmer closing a $1.2 million campaign. Kickstarter and Indie Go Go have brought brand new businesses into the public consciousness.

But crowdfunding also offers opportunities for start-ups. In 2012, the JOBS Act came into being. It loosened federal restrictions on where companies could find investment.

Maybe you’ve struggled to secure traditional funding. You’re looking for an alternative.

Are you a founder looking for an explanation of crowdfunding? Read on to learn the basics of equity crowdfunding sites.

What is Equity Crowdfunding?

Crowdfunding refers to the practice of sourcing funds from a ‘crowd.’ People can invest smaller sums because the power comes from the number of investors.

Equity crowdfunding offers a stake in a start-up rather than the ‘perks’ you’d get on a platform like Kickstarter. Start-ups get access to a bigger pool of equity investors than they could access through traditional networks.

What are equity, investors? They’re the people who opt for this process because they can invest in a broader range of start-ups and have more options on amounts they can choose to invest.

How Do Equity Crowdfunding Sites Work?

Different sites exist to meet different needs. On a basic level, the sites seek to connect investors with investment opportunities.

Start-ups list their company on the sites and fundraising happens in rounds. Once a round successfully finishes, the investor transfers their funds and gains equity in your company.

Some sites hold investment funds in escrow until a fundraising round finishes. At that point, the funds transfer to the company.

There are other equity crowdfunding sites that operate more like advertising platforms. Start-ups market their fundraising efforts, and equity investors contact them privately to make arrangements.

How To Find Success with Equity Crowdfunding Platforms

Identify the sorts of investors you want to bring on board. Do they match with the funding stage of your project?

Work you how much equity you’re willing to offer. Once you know who your target investor is, it’s much easier to pitch your start-up to them.

With a compelling offer, you can support your idea in the mind of the investor. You’ll need a proof of concept to validate your idea. Can you demonstrate what potential market returns, or scalability, you can enjoy?

Show your progress on your KPIs to help boost your valuation. You’ll need a strong pitch to get your point across.

Grab attention within seconds; be sure to include key points, and use the highest production values you can afford. Show investors you mean business.

Build momentum before you launch on the sites. Try to get at least a third of your target committed in advance.

This shows other investors that people believe in you and your start-up.

You also need to ‘work’ the platform. Work to land promotions in email campaigns and look into social media advertising to boost your visibility.

Plan Your Campaign Before You Start

Planning your campaign can be hard work. Running it is also hard, but it can be satisfying if it works.

Or is there another way?

Are you a start-up founder looking for help along your business journey? You could turn to equity crowdfunding sites. Or, you could partner with us.

We work with entrepreneurs who might not get the chance they deserve elsewhere. Get in touch and let us hear your pitch. We’re waiting to hear from you.

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