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By Nathan Rose, Assemble Advisory
“Crowdfunding”. A single word which has been invented in recent years by jamming together two words: “crowd” and “funding”. The part which seems to dominate in the thinking of most startups and growing companies is the “funding” – the money they can raise. But the “crowd” benefits are not to be underestimated. In fact, many successful crowdfunding campaigns rate the additional brand exposure as being even more valuable than the cash they got.
Yes – cash is important, but one of the other main reasons to conduct an equity crowdfunding offer is to build awareness. Most startups think of this in terms of customers, but what is often overlooked is how effective it can be for getting introductions to new suppliers, board members, and other partnerships. When you display your company in such a public forum, people will notice and be attracted to find out more.
When customers become shareholders through equity crowdfunding, it effectively turns a business into a mutual society. When customers also have a stake in the company’s success, it fundamentally changes the relationship between them and the company – they’ll use the products and services more often, tell their friends more willingly, and overall be more engaged than if they were only a normal customer.
Think of it this way: if you were a shareholder of your local café due to equity crowdfunding, and you had to choose between the one you’re a part owner of, and the one next door for your morning caffeine hit, which would you choose? Which one will you encourage your friends to go to? Which one will you be willing to support when they ask you to like and share their social media, turn up to their special events, and provide feedback on new products? The answer is obvious.
One company that has seen these benefits first-hand is Guusto. Skai Dalziel had this to say about their experience raising $50,000 through FrontFundr: “The big benefit of equity crowdfunding was bringing on a number of new brand champions. People who are not only customers, but also promote us to their networks. It helped pour fuel on the fire once our best customers were engaged as shareholders. We were able to better tap into their networks and bring on new customers through them.”
To gain these new brand champions isn’t just a case of scatter-gunning your message out there to the masses – you’ve got to find those who naturally have the most interest in what your company offers. Guusto did this through careful targeting: “Before anybody starts outreach efforts, I always encourage them to think about who the target market is. Don’t waste your time pitching it to anybody and everybody. Go after a very specific demographic who are going to be most interested in what you are doing, and understand the value proposition.” advises Skai Dalziel.
It’s also important to keep your new investors happy, long after the offer has closed. An enlarged shareholder base is of benefit, but only if your uphold your end of the bargain by delivering on expectations, and keeping the dialogue up with your new shareholders. Don’t view having all these new investors as being a ‘burden’ – quite the opposite. Yes, there will be some additional shareholder management to do, but the fear does seem to be overblown compared to the reality. Guusto agreed that as long as you are proactive in communication, investors won’t be wasting your time with frivolous inquiries.
If you are really serious about generating “engagement” with your customers and stakeholders, then engagement needs to be a two-way street. You can’t expect your new shareholders to be engaged with you, by being fiercely loyal brand advocates for your company, if you aren’t willing to be engaged with them in return. So do not put up barriers to being contacted. By making yourself easily reachable, you will hear the ideas and advice of a multitude of people with an interest in seeing your company succeed – and that kind of crowd-sourced wisdom is gold, even if you have to take some time out of your day to hear it.
For many startups and growing companies, gaining marketing exposure and raising external funding from investors are #1 and #2 on their priority list. But, until recently, they were always separate activities - first you would raise the money, and then you would spend it on marketing. The advent of equity crowdfunding means these two critical tasks can be done at the same time. This is a game-changer. Consider using equity crowdfunding for both funding, and perhaps even more importantly, growing your crowd.
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