Will My Equity Crowdfunding Campaign Be Successful?
Most businesses need to raise money at some point to grow or stay alive. Equity crowdfunding can be a great way to fund your business through thousands of potential investors, but not every company succeeds in reaching their funding goal.
While it’s impossible to predict which companies will resonate with StartEngine investors and raise significant amounts of capital, we have noticed a few trends with companies that have had success on StartEngine. To help you get a sense of whether your equity crowdfunding campaign will be successful, we will break some of those business traits down for you here.
Before getting into what we found about the startups themselves, it’s worth pointing out a few parameters. As a platform, we require companies to be the following:
- Your company must be US-based, or US incorporated in the case of international businesses
- You must be willing (and legally equipped as an LLC or corporation) to have a large number of shareholders on your cap table.
- Your company must seek to raise up to $1.07M under Regulation Crowdfunding OR
- Your company must seek to raise up to $50M under Regulation A+
Outside of those basic criteria above, many companies that are successful on StartEngine come from a variety of backgrounds and business models. That diversity means there is no recipe for success, but there are a number of similarities that we’ve noticed among successful companies.
While none of them followed all of the trends below, our funded companies exhibit more of these characteristics than the companies that were unsuccessful.
1. The Business
Unsurprisingly, we’ve noticed that successful raises were often further along in their development, which we can break down into the following subcategories:
On StartEngine, we help companies raise funding during many different stages of their development, whether the company is raising their pre-seed round or their Series A. However, successful raises tended to be further along in their development. For example, successful raises more frequently had products already on the market than just a prototype in development.
Many of them had also demonstrated growing revenue year over year. On average, companies that raise capital through Regulation Crowdfunding on StartEngine had $313,923 in annual revenue the previous year (this data is taken from the StartEngine Index, a national data collection project on Regulation Crowdfunding offerings).
Successful raises on StartEngine often had their product already on the market (e.g. a brewery had developed recipes for their staple beers or a solar company had installed panels in multiple states). Notably, many successful raises also had patents (issued or pending) to protect their intellectual property to protect their business from competition.
Many companies that have had success on our platform had also already raised funding previously. Some of those startups conducted raises on Kickstarter or Indiegogo, and others private funding rounds from angel investors and their own network.
Principal Place of Business
Different geographies offer different growth opportunities. While there are certainly exceptions, the majority of successful companies on StartEngine have been located in or near major metros. 37% of Regulation Crowdfunding investments went to companies based in California, though the fact that we are based in Los Angeles likely increases the overall applicants we get from California.
2. The Team
Beyond the business itself, we’ve also noticed a few trends when it comes down to the people behind the business, which fall into two areas:
Whether the founders of the company have started businesses before or have years of experience in a knowledge-intensive field, historically teams with proven track records and experience have been more likely to raise funding on StartEngine. Raising capital from thousands of investors takes hard work, and successful raises often have founders that are extremely focused on both the raise and the growth of the business itself.
Similarly, we’ve noticed that successful companies often have a strong mission. Investors have shown an interest in narrative and want to know the why behind the business and what motivates the founder day in and day out. Successful campaigns have often told that story and given investors insight into their company culture and the inspiration behind the business.
3. The Community
Moving away from the business and its employees, successful raises have often had robust communities of users and customers, which led to the following traits:
Companies with strong, active customer communities are usually better positioned for success on StartEngine because their community is the first group they reach out to about their investment opportunity. Without a community, it’s harder to drive early momentum in their raise.
On average, StartEngine’s community accounts for 49% of the amount companies raise; the rest comes from their community as well as advertising campaigns. Companies that are able to grow their community through the addition of shareholders that become power users and brand ambassadors have often found more success.
Note: we’ve also seen B2B businesses successfully raise on StartEngine without an audience, so having a community is not essential to finding success on StartEngine.
Equally important to engagement is brand strength and awareness. Part of an investor’s decision to invest is based on their belief that the company will rise to the top of their category or industry. Branding, both on the level of awareness and the unique messaging and design associated with the company, can be the distinguishing factor that influences the investor’s decision.
Tangentially related to community is whether the company has a budget to market their raise to their existing community and to run digital advertising campaigns to individuals outside their community. As a platform, we generally advise that companies spend roughly $5,000 in the first month of their campaign on marketing, though of course the marketing budget varies on a case by case basis.
Successful companies generally understand that raising capital is a time-intensive task, and they set aside time and financial resources to make sure their raise is being marketed properly. On StartEngine, we allow rolling closes, which means you can disburse the money you’ve already raised while your campaign is still going, so you have more flexibility in marketing spend.
Raising money from the crowd is not an exact science. Some companies didn’t share any of the traits above. We’ve had prototype-stage companies, companies with little brand presence, companies that have never raised funding, and everything in between that have still been successful on StartEngine.
Think of these trends as guidelines, but not requirements. If you’re interested in raising on StartEngine, we encourage you to apply today!