There is a right way to approach crowdfunding, and a whole lot of incorrect ways. So let's discuss avoiding the most frequent mistakes entrepreneurs make when considering crowdfunding.
Crowdfunding is a welcome happening in the startup universe.
The contrast between then and today is crude and certainly favorable for the entrepreneur. However, just because there are far more VCs about with more money to invest doesn't mean everyone gets funded.
Hire SEO Consultants There are still way more investable startups out there than investment dollars.
Thus, the democratization brought about by crowdfunding is a net positive for the entrepreneur, but it's, of course, caused by misunderstandings, misuse, even misappropriation -- mostly because of myths and mistakes, and there are plenty of those.
So here is a look at some frequent crowdfunding mistakes that I've seen entrepreneurs make and things to do instead.
Do not Mistake Crowdfunding because VC-Lite
The first and biggest mistake entrepreneurs make with crowdfunding is that the misconception of crowdfunding as a substitute for institutional capital. In other words, founders decide they're not getting traction with VCs or angels,
Web Designing Company which they turn to the crowd as a simpler (sucker) target.
Don't do this.
If the financial requirements of the startup fit the VC/Angel version, we will need to be seeking VC/Angel investment. Crowdfunding is not VC/Angel with a lower bar for investability, also if our fundraising efforts are spectacular out with traditional investors, then the prospects are going to be no rosier with the crowd.
We need to ascertain our financing model up front, and be sure it fits our business model. There are numerous key differences that we need to take into consideration before we begin raising.
Don't Mistake Equity for Product
First let's keep ourselves out of legal and financial problem.
There are essentially two types of crowdfunding: Investment Crowdfunding, which will be promoting equity in the company, and Rewards and Donation Crowdfunding, which will be selling product or goodwill to early adopters.
Organic SEO Marketing These are two completely different schemes with entirely different requirements.
I've surfaced as a angel investor and crowdfunder, but mostly I start and grow businesses. So I turned into a former investor at one of my startups who led the Investment Crowdfunding regulatory push in North Carolina where I'm based.
"If we are speaking about Investment Crowdfunding, it's very important to founders to remember they are selling securities, either equity or debt, which can be regulated at either the national or state level depending on which exemption is chosen."
The process for payoff Crowdfunding is a lot like conventional fundraising. As an example, we still need to file Form D, or anything like it.
Mark says,"The filing, disclosure, and promotion rules vary based on the exemption. So founders should understand the rules and receive decent guidance on following them from their investment platform and team."
Don't Go It Alone
Whether we use the Investment or Donations and Rewards model, another major mistake creators make is assuming the crowdfunding procedure is self-fulfilling. But we can not simply open the financing door and count the money because it pertains in.
For Investment Crowdfunding, as Mark suggests, with financial and legal specialists, either individually or via a platform such as the one that runs, is critical, not discretionary. Selling inventory to the audience isn't a simple or short-term process, and we'll have to shepherd that procedure all the way into the finish.
For Donations and Rewards Crowdfunding, we'll be embarking on another kind of travel, but one which may be both resource intensive. Like most of startup investment, we will want to be raising cash to complete and deliver the product, not start from scratch. Dynamic Website Development So we'll want to have identified the ideal manufacturers and sellers to get our team and possess a minimal workable product for them to switch up and ship.
In addition, we will also need to recognize a marketing team and program lots of crowdfunding campaigns, since D&R is much more advertising than marketing.
Don't Use Crowdfunding To Market Evaluation
This is a frequent misconception with all kinds of fundraising but it particularly applies to crowdfunding: '' We should never increase money to validate an idea or a product with the audience.
Even when we get financed, it's dumb money and it is going to often lead to trouble. But it's more likely that we won't get funded, even for and notably for Rewards and Donation Crowdfunding. That is because, unlike conventional marketing campaigns
Email Marketing Solution , the results of a D&R effort are pretty much all binary, we either hit our goal or we don't.
Thus, we will need to campaign on the specific appropriate product for the marketplace to present the best chance at reaching our objective. In addition, we ought to be advertising exactly what we are going to send, therefore we won't be setting the wrong expectations for our backers.
Now, let us apply the market-testing scenario to payoff Crowdfunding and we will instantly understand the flaw. We have investor #1 that thinks of our firm a certain way, but by the time we get to buyer #100 our model, possibly our firm, has evolved dramatically because we followed the money.
That is how lawsuits occur.
Don't Expect Your Startup into Fund Itself
We entrepreneurs do this all the time -- we prep the station we open the channel, we sit and wonder why no one is buying. Both payoff and D&R crowdfunding require a lot of work, the same as a roadshow, to reach the goal.
One D&R effort I enjoy a great deal is Joeveo, a startup which bootstrapped its way to their first solution, a scientifically designed mug for coffee and tea enthusiasts. Once they had their MVP, Dean Verhoeven, the creator, determined that D&R Crowdfunding was the ideal route for Joeveo.
"We used Kickstarter to crowdfund initially, using a home-made effort ."
However, the sales didn't roll in overnight, nor did the campaign follow what anybody would call a common and repeatable path.
"It succeeded due to'organic' marketing. I was working with a current NC State grad and the campaign was picked up from the school newspaper, and also my nephew chucked it to a significant tech podcaster he knew who talked it up on his show. These cites were picked up and amplified by other big tech/gadget blogs. We have no results in paid PR, though we did not spend much on this route."
Lesson learned: Crowdfunding is not a substitute for advertising. Or legwork. And the gap between failure and success could backfire on constant contact.
"They will love you for it."
Don't Depend on the Wisdom of the Crowd
Any institutional investor will tell you that they attract more than just money to the table they deliver experience, relations, and a directing hand. While I do not think about this as a panacea, it's something precious that we're not likely to get from the audience.
No matter which crowdfunding model we select, we should have our board and our advisors set up or at least be considering it.
We may encounter a scenario where a plurality investor might drop hints or even need a board chair.
My preference would be to have a plank selected, even make it public, before the fundraising starts. Investment Crowdfunding is generally a stepping stone into a more traditional fundraise, and much more durable plank seats can be defined and filled at that moment.
Obviously, in the D&R model, a backer shouldn't be a board member, since they don't own equity, but exactly the same advice applies.
Before we believe crowdfunding, as with everything in startup, we all need to be thinking about tomorrow today. Being prepared for what the business looks like after a crowdfunding increase is critical, because we never know what kind of crowd we're going to get.
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