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By Nathan Rose, Assemble Advisory
Running an equity crowdfunding campaign is a risk. If you succeed, you will get money and positive publicity. And if you fail, your efforts will have been wasted – besides receiving no money, it will be very difficult to try again. It all comes down to one shot. One opportunity.
Will you capture it, or just let it slip?
To succeed at crowdfunding you need to prepare and plan. Over 2,000 years ago, Sun Tzu wrote something similar: “Every battle is won before it’s ever fought”. Tzu was a Chinese military general and tactician, but he would have made a great crowdfunder if the internet had been around in ancient China.
How can you win the battle before it has been fought? How can you succeed before you launch?
We all know how it goes – in business and in life, we are always extremely busy. Especially in early-stage startups, there are always a million-and-one things on your to-do list. You cross one thing off and two more items crop up in their place.
So in the face of mounting distractions, and the need to get big things done in a hurry, founders have been turning to “sprints”, “startup weekends”, and the like. They set aside 48 hours to rewrite their code, launch their product, or achieve some other milestone in a frenzied burst of focused activity.
This approach will not work for crowdfunding. Equity crowdfunding is akin to marriage between you and your investors, as their money will most likely be tied up for years and years. It’s a big commitment.
I’m no expert when it comes to marriage, but I know one thing: you stand a much better chance if, before you pop the question, you talk to your future partner, go on some dates, show your affection for one another, move in together, and make sure that you are both on the same path in life. You’ve got to date each other before enough trust is built for marriage.
You can’t get a crowdfunding offer “done” from zero in a matter of weeks. Not if you expect to succeed. Start community-building long before you actually need the funds. People won’t care about you or your campaign if you haven’t first shown that you care about them.
Want to know the secret of how to find out whether your crowd will invest in your company?
You do something dazzlingly brilliant which 99% of entrepreneurs won’t do.
You ask them.
Getting feedback on who plans to invest in your company, and how much, is analogous to doing new product validation. Instead of making a product and then trying to find people to buy it, you instead ask potential customers what they want. If you can find enough people who want what you’re thinking of making, then you go ahead and make it. If not, you save yourself the hassle and try something else instead.
The need to do new product validation has passed into canon in the startup realm. Every entrepreneur worth their salt knows it. But knowledge is domain-dependent – it’s easy to forget what is common sense for product launches, when we consider a related field like crowdfunding launches. Something about how the human brain is wired.
A simple Google Form or Typeform can be used to collate feedback gathered over the internet from your crowd. You outline a few details about how much money your company is looking to raise, what you are looking to spend it on, why it would be a great investment, and then guage your crowd’s interest at several levels:
Don’t just restrict your pre-campaign research to electronic outreach. “Getting out of the office” and actually talking to people is critical too. By doing so, they will reveal what they think of the proposition and use language you can use to craft your pitch – pre-empting objections, or highlighting what they see as positives.
The benefit of using a well-established equity crowdfunding platform is the ability to use the platform’s crowd to contribute some of the money you need.
Choosing a platform is an entire exercise in itself. One of the key questions you need to ask is: “how much interest will their audience have in this type of business?”. The audience of some platforms will suit consumer items, some platforms are strong in raising larger sums, while some platforms are best suited to start-ups at the very early stage. Is your business a good match?
Then, you should add up the total money you can expect, based on the feedback you have had from your network, and the best estimate available of what to expect from the platform’s native audience.
Total Amount You Can Raise = What Your Crowd Will Invest + What The Platform’s Crowd Will Invest
If this doesn’t add up to your minimum funding goal, then you have discovered something very valuable – there just isn’t enough interest in your network to justify running a crowdfunding offer. Let me emphasise - you would much rather discover this before launching a campaign. Aborting a campaign before you launch it is far superior to running an unsuccessful one – in terms of cost, in terms of time, and in terms of reputation.
A “pre-mortem” is an invaluable exercise to perform before any kind of strategic business move, whether it’s making a new hire, expanding to a new market, or beginning a crowdfunding campaign.
What’s a “pre-mortem”?
Well, you might have heard of a “post-mortem”, where you review a course of action and figure out what worked well, what could have gone better… and what was a monumental disaster.
A pre-mortem is exactly the same, except unlike a post-mortem, a pre-mortem is performed BEFORE the event. You imagine that you went ahead with your plan, but it failed, and then put yourself in the shoes of your future self.
For crowdfunding, picture your offer getting to only 10% of its target – not even get close to the sum you needed. You pretend you’re in this scenario, brainstorming the reasons why you failed. You might come up with reasons like:
Having completed this pre-mortem, you are now armed with a list of failure factors to guard against. A very helpful exercise to help you succeed.
Life is risky. Crowdfunding is risky. And yes, taking risks is part and parcel of being an entrepreneur. But there is absolutely no point in bearing risk foolishly. Even though there is the risk of having an accident when you drive a car, you can wear a safety belt. Even though a crowdfunding offer has a risk of not reaching its target, if you prepare well enough, you can substantially improve the odds that you will succeed.
Get the very best insights from successful crowdfunders from around the world. My book "Equity Crowdfunding" is out now on Amazon.
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