UPRETS INSIGHTS | How to Benefit From An Efficient Marketing Campaign Through Regulation A+
SEC Regulation A (commonly referred to as Regulation A+) was implemented by the SEC in June, 2015, pursuant to major Congressional legislation, the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). It allows companies to raise up to $50 million in a 12 month period from both accredited and non-accredited investors — and broadly solicit and advertise the offering — without engaging in a fully SEC-Registered IPO, and without the same burdensome level of ongoing disclosure to investors.
In terms of the Regulation A+ Offerings, potential clients mostly understand that we need approval from the U.S. Securities and Exchange Commission (SEC) and require an investment of legal, compliance and accounting fees. However, when we are committing to a full-blown marketing plan that is likely required to raising significant capital, we usually come to a very confusing but vital question:
“Why do I need a marketing budget? Can’t I just put my Mini IPO online and people will invest?”
“Crowdfunding in the U.S. is off to a relatively slow start,” says Ryan Feit, the chief executive of a crowdfunding platform called SeedInvest. By contrast, crowdfunding now contributes about 17% of all early-stage capital in the U.K., where investors rally behind favorite business like the Scotland-based public chain, BrewDog. The chain has dozens of brewpubs around Europe and is using Regulation A+ to fund its first U.S. brewery, in Columbus, Ohio. Proven ideas like this are rare among microcaps.
With a Mini-IPO, unlike full-blown IPOs, there is no Goldman Sachs or Merrill Lynch instructing thousands of their brokers to push the IPO stock out to clients. With a Regulation A+ offering, nobody is promoting the stock to potential investors except the company raising money, and whoever they hire to market the offering. Without a marketing effort, chances are few people will find out the company is raising capital.
A Lesson Learned from Reward-based Marketing Crowdfunding Campaign
To the general public, a Regulation A+ Mini IPO listed on Bankroll or any other online funding website will look and act like a reward-based crowdfunding campaign on Kickstarter. It is highly successful ones that require pre-planning, significant time investment in marketing and often the investment of significant funds on ads, public relations, social media and traditional media outreach. A Mini-IPO will also require the same kind of planning and marketing to be successful. A similar marketing approach to those that allowed the Coolest Cooler and the Pebble Watch to raise millions through rewards-based crowdfunding, will be required to raise tens of millions through a Mini-IPO.
Most people have no idea how much money is spent to market high-end rewards-based crowdfunding campaigns. Take Steve Lebischak’s company as an example, who has successfully raised $648,691 from 1,296 backers on Kickstarter in a reward-based crowdfunding campaign for the 1964|ADEL line of earphones that deliver richer sound while minimizing risk of hearing loss at the Wharton Innovation Summit in Washington, D.C. a few months ago. Steve told us that they spent $65,575 in marketing, video production, advertising and public relations to marketing their successful Kickstarter campaign in order to obtain enough exposure and conversion.
More than 10% of the Project Budget Shall Go Into Marketing?
Steve Lebischak’s Crowdfunding campaign is not an unusual story. And according to Kickstarter, only 128 campaigns to date have raised
$1,000,000 or more, which is about one-tenth of 1 percent of all successful campaigns. Nonetheless, the common thing that happened in all of them is that none of them spared less than 10% of the overall Regulation A+ project budget on marketing, with least of 13.11%. Crowdfunding experts know that the grand majority of those high-end campaigns had significant marketing budgets, or they never would have raised the money they did.
Exhibit A. Bankroll’s Suggestions on Equity Crowdfunding & REGULATION A+ Marketing Plan
Unfortunately, too many companies and individuals are being talked into this strategy without the appropriate background information, and as such, results of poorly executed crowdfunding campaigns are much easier to find than the success stories. Regarding of those failures, we have reached the following Mustn’t Do:
Making An Offering That Is Not A Consumer Investor Fit. Because seasoned investors are skeptical about new developments in the financing business and generally hyper-cautious about jumping into anything that seems untested, Regulation A+ companies must appeal deeply to consumers to be viable. The potential backers, however, may absolutely love a product or a company and be eager to participate in its growth. Just take a look at some of the big Kickstarter raises for some good examples.
Relying on Do-It-Yourself Marketing. Many companies have attempted to promote their own offerings with only partial professional support. But because equity crowdfunding is a very specialized field that requires 360-degree coverage, careful project planning, and highly effective methods, they may be doing themselves more harm than good. Regulation A+ is a funding system that is truly open to the public, and as a result, early success must be delivered and shown in the first few weeks for the later weeks to work well. Weak early traction leads to failed offerings.
Failing to Engage A Broker-dealer Syndication. Some companies have tapped out the available consumer investor pool without achieving their
funding goal. The Elio offering, for instance, was a tour de force of consumer marketing, but the company ended their raise at $16.9 million, with a $25 million maximum planned. Had they included a broker-dealer syndication they would have easily raised the full amount — brokers wanted in. The fact is, as a practical matter you cannot go back and retrofit a broker-dealer Syndication after you started your offering.
As such, here are some general tips for marketing an equity crowdfunding campaign, There Are Still Some Key Elements Need to Be Cautioned.
Get Your Online Presence in Order. Raising money from a diverse audience and a group of sources can be difficult, but nothing makes equity crowdfunding so challenging as to do so with a poorly designed or ill-functioning website. The investment website is the primary way you are soliciting funds, and as such need to clearly lead potential investors through the offering process. Getting your digital presence of ready means focusing on messaging for the website, carefully reviewing the design and aesthetics, proofing all content, and last but not least, do not underestimate the importance of the landing page for your online offering!
Further, legal context with regards to selling securities online must be considered. Solicitation can mean advertising, webinars, internet offerings, group presentations, but it does not mean hype or exaggeration.
Identify and Market to Your Audience. Understanding your ideal investor profile isn’t easy, but it needs to be done to build and leverage a captive audience. If you are a company reading this and looking to raise money online, and already possess an existing database of thousands or even hundreds of thousands of contacts (be it customers, clients, partners, etc.) with e-mail addresses, congratulations! You are ahead of the curve. Or, perhaps you already have a good feel for the sort of individual who is likely to invest in your company, and now you just need to go about marketing directly to them. Review site demographics, consider the profile of past investors and interested parties, and try to make that determination early, but…
If You Don’t Have An Existing Audience, Build One. Far too often a company approaches us with a great idea, a well-designed website and video that clearly spells out the investment opportunity, and a strong message for the media. This should result in success, right? Well, not always. Equity crowdfunding requires some forms of direct marketing, and to do so, a company must have a base, either a significant social media following or a database consisting of contact information. If you don’t, social media advertising has proven to be a lead driver of web traffic and conversions. Consider running a Facebook advertising or Google AdWords campaign that drives specifically targeted people to your investment landing page. As many know, online advertising can be precisely targeted, and is a great way to get an idea and offering in front of potential investors.
Lastly but Most Importantly, Stay Credible!! Usually, people are missing one last tool — news flow. Most public companies know of distributing press releases that outline corporate announcements, market opportunities, industry events, and other newsworthy items are proven ways to remind current and potential investors that you are a very active company. Similarly, getting featured in third-party, earned media builds credibility, whether it’s in a trade publication, a daily newspaper, radio show, or broadcast television. Working with a media relations and corporate communications firm is a great way to produce press coverage and reminds investors that you are a real company making news within a high-growth industry.
Equity crowdfunding was meant to spur innovation and growth, while providing Main Street investors with a means to access high growth companies. It is certainly not an untapped source where everyday web users are patiently waiting to visit an online investment opportunity. Be prepared, be proactive, and remain top of mind, and maybe the idea hatched in your own home will one day be listed on a major U.S. stock exchange.
About UPRETS:
UPRETS is a platform focused on simplifying investment in real estate.
We are dedicated to providing a convenient, compliant and advanced real estate digital securitization platform for property developers, asset owners and investors globally.
By utilizing UPRETS platform, real estate developers and assets owners can create digital securities for their properties, allowing investors to benefit from the rental dividends and capital appreciation of the properties in major global cities.
Backed by a publicly listed real estate conglomerate (NYSE:XIN) and our award-winning, patented blockchain technology, Xbolt, we bring a network, experience and luxury assets to the platform.
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