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By Nathan Rose, Assemble Advisory
Once you’ve weighed the pros and cons of equity crowdfunding versus other ways of raising money, you will still be faced by a bewildering array of options over the best crowdfunding platform. In any single country where the legislation has been passed, there can be scores of different platforms – and to make telling them apart even tougher, most of them they even sound alike; their names almost invariably feature at least one of “Crowd”, “Angel”, “Seed”, or “Fund”. How can a company founder really be expected to tell the best crowdfunding platform in such a “crowded” space?
Choosing the best crowdfunding platform is like a job interview. You should be interviewing them, just as much as they’re interviewing you. Present yourself well, but make sure that the representatives of the platform aren’t the only ones asking the tough questions.
Above all, keep this one thing in mind – you need to find the best crowdfunding platform that you have the most confidence in to get the job done. Achieving a successful offer is what you’re after. You really do only get ONE shot - I’ve never seen a company that has had a failed offer subsequently re-launch, let alone successfully raise money through equity crowdfunding.
Think of it this way: If you were selling a book, and you could only choose one place to sell it online, where would you go? To get the most interest and the best deal possible, the best thing to do is to list wherever the buyers are… and for books that probably means Amazon.
The same is true of equity crowdfunding – you need to go to the platform where your potential investors congregate. So ask the following:
Gain the greatest possible understanding of what kinds of offers their investors have the most interest in, and you can see how this matches with your own company.
You should get some basic data from each platform to cut through the impressive website landing pages and well-designed logos that everyone will have.
The offers that actually go live are only a small fraction of the companies that would like to raise; in industry-speak, this is called “curation”. The best platforms with the best reputations can afford to pick and choose the companies they list on their platforms more carefully. With a reputation for only listing better-quality companies, the platforms hope to gain a better shot of using this reputation to be the “place to be” for more investors.
The platform you decide to launch with should have a high success rate. What constitutes “high” varies hugely from country-to-country, but by comparing success rates between different portals within your country, you will get a good handle on which is the best crowdfunding platform to give your offer the best shot of reaching your target.
Platforms differentiate themselves in many ways. Some of these include:
Consider that the best crowdfunding platform for you may not necessarily be the one with the most investors in their database or the most funds raised – your company might well be a better fit with a smaller platform with a more specialised interest in your type of company.
Platforms may charge an initial application fee to even assess your suitability for equity crowdfunding. While this may seem harsh, more and more platforms are doing this in response to the overwhelming volume of companies that approach them wanting to raise money. By applying this initial filter, they hope to screen out the non-serious applicants, and spend more of their time with the companies with a realistic shot.
The majority of fees will be structured as a percentage of funds raised, which means they are only payable if your raise reaches its target. Depending on the platform, the success fees will typically range between 5 – 10%.
Know the fees, but don’t have them as your primary consideration. It would be foolish to raise with a platform that you judge as inferior, just because they’re cheaper. Remember, a successful offer is what you’re after – you’d rather pay a high fee on a successful raise than no fee because your offer failed.
Beyond just putting your offer on their site, the best crowdfunding platform should help out in other ways.
Some platforms will expect you to bring the offer together largely by yourself, while others will hold your hand more, with more significant resource devoted to making your offer a success.
Don’t be surprised if the platforms with higher success rates and higher fees are the same ones that are able to offer more services. The platforms with the higher success rates get the best companies, therefore attract the most investors, then can charge higher fees which allows them to devote more effort to make their offers successful... a virtuous circle.
Don’t overlook the human element. An equity crowdfunding campaign takes place over many weeks, featuring demanding deadlines, tough conversations and high stakes. You will want to spend this time with people you can get on with and see yourself working with professionally. Go and meet the actual team members that you will be interacting with during an offer and see if you connect with them. Ask about their experience and background, and ask yourself: “does this person fill me with confidence?”
If you’re like most people, you probably never gave a thought to just how many different equity crowdfunding platforms are out there, and at first glance they all look pretty similar. But look deeper. Your choice of platform is one of the most critical decisions you can make – the amount of variation within the industry necessitates taking the time and effort to understand which is the best crowdfunding platform for you. That way, when it comes time for you to take your ONE shot, you have the best chance of success.
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