The Struggle Is REAL.
StartEngine has seen firsthand the challenge of holding crowdfunding campaigns. These best practices shed some light on how you can avoid the struggle while raising capital online.
The process of forming a startup company can be exciting, but in today’s highly competitive entrepreneurial culture it is imperative not only to formulate a creative idea but also to garner a meticulous understanding of what it takes to truly stand out to potential investors. While, statistically speaking, 90% of startups will fail, it is possible to be part of the elite 10% that succeed. To successfully utilize equity crowdfunding to fund your startup, your fundraising efforts need to develop a meaningful connection with investors. Since the launch of Regulation Crowdfunding on May 16th, we have seen the struggles that companies can encounter while running their campaigns. Although there is no way to guarantee success, there are strategies to improve the chances of making your business dream come true using the equity crowdfunding process.
Establish a Strong Social Media Presence
The significance of spreading the word about an idea on appropriate social media platforms cannot be understated when it comes to achieving a successful campaign. As one MediaShift article aptly points out, “the crowd is not looking for you.” Driving attention to a campaign is your job — no one is going to actively seek you out. It is vital to pinpoint an audience and carefully consider which websites are most likely to maximize exposure. It is also helpful to not only explain but excite. Once an audience is excited about a campaign, it is important to make them feel like a valued part of the process. Engaging a social community by allowing them to provide feedback and ask questions creates a sense of involvement that increases their desire to join you on your entrepreneurial journey.
Use Gleam to Host Giveaways, Gather Feedback, and Increase Audience
An app that can be extremely helpful in promoting your raise is called Gleam. For those who are not familiar with this tool, it is used by startups to host giveaways, enhance brand exposure, and obtain valuable feedback. Users can sign up with Facebook, Twitter, Instagram, or email to get a single entry to your contest; they can attain additional entries by taking extra actions such as answering a topical question related to your brand, providing feedback, watching an additional video, etc. It is important to be cognizant of what you are giving away, as you want to know your audience well enough to pick a product that is coveted and enticing. If done correctly, a Gleam campaign can increase your audience, provide your brand with feedback, and motivate your team to reflect upon the product and brainstorm improvements for the future.
Choose a Reliable Team
As Steve Jobs once said, “great things in business are never done by one person, they’re done by a team of people.” Choosing the right team for a business is not a task to take lightly as it can impact your ability to reach your capital goal. While it may seem tempting to hire as many people as possible to get your idea off the ground, selectivity is key. It is important to consider the values of potential team members, and decide if those values align with your own. While differences in opinion are to be expected, it is useful to have common core values in terms of work ethic, discipline, and goal setting so you can be confident that your team is equally as determined as you are to make your campaign a success. Although it may be a bumpy ride at times, seek out team members who are inspired and more than ready to buckle their seat belts and work hard to achieve a common goal.
Develop a SMART Plan
If you want your campaign to be successful, it is important to have a plan. Many top entrepreneurs and business moguls swear by the SMART plan, which is essentially a guide for setting goals that are Specific, Measurable, Attainable, Realistic, and Timely. The more specific your goals, the more likely it will be that they can be achieved. Also, if you have a way to measure progress, staying on track will never be an issue — you can feel good knowing that goals are slowly being realized. Although it may seem obvious, make sure your goal is realistic. If you are motivated and determined, a challenging goal can still be realistic, and you will feel proud when you see your diligence pay off. Finally, setting a time frame in which you want to achieve your goal allows you to stay organized, and keeps you and your team on track and focused.
In addition to tools and strategies to help with the success of a campaign, there are measures to avoid to keep your campaign in compliance with the rules and regulations set forth by the Securities and Exchange Commission (SEC). Some of the most important “do not’s” can be found below:
1) As a Title III campaign, you may not make any offers, publicly or privately, before you file your Form C with the SEC. The terms of making an offer are broadly defined, and include meeting with potential investors and giving a preview into your campaign. Communication prior to filing of Form C goes against Section 5 of the Securities Act, however, after your Form C is filed, you are still not permitted to communicate the specific terms of your offering until the offering is live. For more information on how to comply with Regulation Crowdfunding communication guidelines, click here.
2) As a Title III campaign, you must not exceed 1 Million dollars raised in a 12 month period. As a Title IV campaign, you must not exceed 50 million dollars per deal across all accredited and non-accredited investors in a 12 month period. Individual investments for any issuer are limited to $2,000 dollars or either 5% of the lesser of their annual income or net worth of the investor, assuming annual income or net worth is $100,000 dollars or less, or 10% of the greater of their annual income or net worth if the net worth or annual income of the investor is 100,000 dollars or more, with a cap of $100,000 total that can be invested in one Title III raise by any investor regardless of income over a 12-month period. For accredited investors in Title IV campaigns, there is no restriction on the amount they can invest. However, for non-accredited investors, they can invest a maximum of 10% of the greater between annual income or their net worth per year, whichever is greater.
3) Intermediaries may not provide investment advice to potential investors, or further possess or handle investor funds. Equity crowdfunding rules dictate appropriate and inappropriate action for intermediaries, and it is important to review these guidelines in depth to ensure your startup’s compliance. To gain a better understanding of how the new rules affect intermediaries, visit this link.
Because there are so many detailed regulations to consider, perhaps the best advice is to discern what type of startup you have (Title III or IV) and your capital goal, and from there spend some time reading through the rules and guidelines that are most germane to your individual campaign. To see the official guide set out by the SEC for Title III campaigns, click here. For Title IV campaigns, click here.
After you are properly informed as to all of the rules affecting your campaign, you and your team will truly be ready to commence the process of transforming your vision into a reality.