Equity Crowdfunding Needs More Female Founders – Are You Next?
The Money Culture Clash
Female startup founders might be able to identify with the following problem: their business growth is being seriously stifled by a lack of capital – they need money in order to achieve their big goals. But getting that money necessitates going on bended knee to the banks and/or venture capitalists; those old-school institutions of (mostly) faceless men in gray suits acting as gatekeepers to their ambitions. Krissa Curran said as much in an earlier article, here on Ms Career Girl.
Sure, some entrepreneurs feel at home navigating this space. But submitting themselves to the traditional financing system isn’t for everyone. Mortgaging your future with a bank loan is a huge risk, and isn’t even possible for many early-stage businesses. Meanwhile, taking venture capital money often means one of their representatives will end up with a big say over the company’s direction. Some simply do not gel well with the male-dominated “VC culture”, and don’t want one of them constantly peering over their shoulder. This doesn’t actually mean that their company is any less worthy of being funded, but until recently, there was very little choice.
Arrival of Equity Crowdfunding
Happily, there is a new game in town: equity crowdfunding. Instead of seeking out one or two large investors for all of the money needed, entrepreneurs can now publicize their company over the Internet, and get small chunks of equity funding from numerous small investors. This allows entrepreneurs to keep closer control over their company culture, while also bringing on new customer evangelists to help drive their company growth.
So, how to crowdfund? Equity crowdfunding is quite different to the “Kickstarter-style” crowdfunding that most people are more familiar with. In a Kickstarter campaign, backers get delivered a pre-ordered product of some kind. Usually these are consumer items – such as board games, clothing, and cool new widgets. But with equity crowdfunding, the money is an investment. So, rather than receiving the widget in the mail, the investor becomes a shareholder in the widget company. The fact that people are investing (rather than ordering a product) also opens it up to many more different business models, including B2B companies, services, high-priced goods, and items which are not easily shipped.
The equity crowdfunding rules are different all over the world. Equity crowdfunding is regulated by each individual country’s securities laws. In the USA for example, it is possible for a company to raise up to $1.07 million per year, without needing to prepare a prospectus.
Case Study – Alicia from NaturalBox
Alicja Domelid runs Naturalbox, which delivers organic snacks, health, and beauty products. She is the kind of ethical entrepreneur for whom equity crowdfunding holds particular appeal. Her company raised €212,160 on Swedish equity crowdfunding platform FundedByMe in June 2016. She explains the problems with the traditional financing system as follows:
“No banker would share the passion I have for my business. And most venture capitalists are pretty arrogant, greedy and difficult to work with, from what I know.”
Strong words, but Alicja isn’t alone in feeling this way. Since finishing her equity crowdfunding campaign, Naturalbox has gone from strength to strength.
“It really is possible! Ordinary people are actually interested in becoming investors in startups, and they actually will engage. I would strongly recommend startups to seek crowdfunding and to invite the crowd to become engaged investors… We now have a global network. Imagine that a local company can now go global with the help of crowd funders.”
How To Get Started With Equity Crowdfunding
Before launching an equity crowdfunding campaign, entrepreneurs first need to build and excite their own crowd. The equity crowdfunding platforms are host to their own investor database, but the initial momentum definitely needs to be driven by the entrepreneur. This provides the social proof to the platform’s crowd, who will be much more likely to invest money if the offer looks “hot”, with plenty of progress towards the funding target.
Building a crowd is similar to any other kind of promotional exercise. First, you need to have a target investor in mind. Then go where they naturally congregate, and present your company in a way such that people want to know more. This can be in-person, or online. Then, you must build a relationship with your crowd over time to make them know, like and trust you enough that it becomes natural that they want to deepen that connection through becoming a shareholder.
Using a Landing Page
Hosting a landing page on your own website, inviting them to sign up to learn more about your intention to do equity crowdfunding can be a great first step. You can do this well in advance of anything else. Even before getting approved on a crowdfunding platform, and before creating all the marketing collateral. All you need is a signup form, and a connection to an e-mail management tool such as Mailchimp. For users who have built their website on WordPress, another low-touch way to direct attention to your pre-crowdfunding offer page is through the plugin Hello Bar – which creates a small popup on every page of a website, encouraging website visitors to drop their email in.
Once your crowd has been built, then there’s the choice over which equity crowdfunding platform to use – which is an entire exercise in itself. Above all, look for platform size. You want your company to be featured on the largest marketplace possible, with the best user experience, and with a close brand match to your own company.
It’s exciting times for entrepreneurs. The ability to set their own offer terms, promote their company to the public, and let the crowd decide if they are worthy of being funded is a game-changer. It means that female startup founders can bypass the financial gatekeepers they have had to kowtow to for so long. They can raise money, and promote their company concurrently. This is a game-changer.
This guest post was authored by Nathan Rose
Nathan Rose is the bestselling author of Equity Crowdfunding: The Complete Guide For Startups & Growing Companies. He has appeared at crowdfunding events around the globe, including in Toronto, Amsterdam, London and Paris. Nathan has written for Crowdfund Insider, the world’s most prominent crowdfunding news site. Today, he runs the website www.startupfundingsecrets.io, as a way of helping startups from all over the world use equity crowdfunding to gain marketing exposure and raise money at the same time.