Risks and Rewards of CrowdFunding with Bill Clark
By 2010, traditional crowdfunding platforms like Kickstarter and IndieGoGo were growing at record speeds and the number of platform successes was impossible to ignore. Recognizing the potential of crowdfunding and the desires of angel investors, in 2011, the SEC published new Regulation D rulings that permitting equity crowdfunding sites to be built.
In this post, we’ll be talking to Bill Clark, CEO of MicroVentures, one of the first companies to make use of this ruling. MicroVentures is a San Francisco and Austin based platform that provides opportunities for angel investors to invest in startups alongside venture capitalists, often at the same terms. Over $85M has been raised on their platform to date.
Steven: What are the top Benefits of Equity Crowdfunding?
BILL: “The Ability to access your network, customers or users, who know you and your company the most is a huge benefit to crowdfunding. They typically already understand the pitch and direction of the company if they are active so that part of the conversation is a lot easier and can accelerate the timeline.”
Bill hits the nail on the head here. So often in fundraising, the piece of the process that takes the longest time, and causes your typical 6 month timeline for a raise is the initial trust-building period. Investors want to know you and know your company/product before they are willing to invest.
However, by leveraging crowdfunding platforms, instead of having to spend the months it takes to find investor leads, meet them, build their trust, conduct due diligence, etc. you can be taking direct investment from your customers or individuals in your immediate network that may not be accredited. These individuals already know you, or are actively using your product. Trust is already in place, and an investment transaction is therefore accelerated.
That said, there is an interesting hidden point here that Bill is making. Often times, crowdfunding is most effective when used to activate an already existing pool of leads, such as a large personal network, or a set of active customers. So this tells us, crowdfunding is not just for new entrepreneurs launching new products on Kickstarter. A great use case might be a seed stage company that needs another 6 months to reach Series-A traction. Think about using crowdfunding to activate AND align incentives with your customer base, as they could become micro-investors in your company.
BILL: “Many companies use equity crowdfunding as a marketing exercise for their company. It’s a way for them to get access to 100,000 investors or more who might not know about the product or service. They can use this to jump-start their growth and raise awareness.”
The key takeaway here is that crowdfunding is not always about funding, and can also be leveraged as a tool to drive growth. In a similar way to how many participants on Shark Tank leverage the show, to maximize brand awareness and sell more product.
Steven: And what about the Challenges of Crowdfunding?
BILL: “Marketing – Raising money isn’t easy the traditional way and it isn’t easy online either. If you list your company and let the portal do all of the work the chances of hitting your goal are small. It is a team exercise with the company reaching out to their network and the platform marketing as well. Having both groups aligned with the goals will help you raise more money.”
A great lesson here. Nothing comes for free when it comes to marketing or fundraising, and crowdfunding is not a “set it and forget it” type of initiative. To pull off a successful crowdfunding campaign, it takes a significant amount of prep work, activity during the campaign, especially at the beginning, and coordination of your internal team, and the platform(s) you are leveraging for your campaign.
Here is an article we really like on how to market/hack your way to success in your crowdfunding efforts: https://www.inc.com/jason-surferapp/mizzen-main-raised-money-kickstarter.html
BILL: “In addition to marketing concerns, there’s the concern of having too many investors. Many people are concerned about the number of investors they will be adding to their cap table. This causes many companies to skip equity crowdfunding. There are ways to manage these investors and reduce the burden on the cap table or even communication with those investors. You just need to make sure you are working with a platform that has solved these issues.”
Another prudent cautionary tale. Sometimes the work on the back-end of a crowdfunding campaign can be more trouble than it’s worth. Having an extra 150 investors on your cap table, all investing less than $5,000 a piece, clamoring for information or trying to tell you how you should run the company can get out of hand quickly.
Like Bill said, this risk is avoidable, as long as you gameplan on the front-end, and work with a platform who has solved these issues.