Equity-based crowdfunding offers a new avenue for American entrepreneurs to raise capital. Entrepreneurs already thrive in the United States’ consumer-centered economy; anybody can find and fill a need. The size and diversity of the U.S. population offers a fallow consumer base for entrepreneurship, too; among 320 million people with many different backgrounds, lifestyles, and interests, entrepreneurs can find infinitely many needs to fill.
As an entrepreneur, you may have struggled to convince banks, venture capitalists, or angels to invest in your business. There’s a problem, though: those investors’ motivations don’t align with your motivations as an entrepreneur. You’re trying to solve a problem. Your investors want a financial reward. Banks, VCs, and relatives often don’t belong to the community that needs what you’re creating. So why get involved? They need to expect that you will produce a large return for them.
Your crowdfunding investors are different. They invest because they want to be involved in what you’re creating. Who are those investors? They are your target community. They’re your customers and the people who support your customers. These investors hope for financial gain, but they invest because they believe in your business and support the community that you want to help.
People are motivated by the chance to be a part of something larger than themselves. Everyone has something that they do, something that they love, or someone that they care about. They want to connect with other people who share their values, and that group of people comprises a community. That community has ambitions: to grow, to strengthen, to gain a voice in society. That community has needs; it needs products and services to help it fulfill its ambitions. Your best crowdfunding investors will come from the community that your business supports.
Suppose you’re building a service that identifies safe streets for bicycling in the city of Miami. Who belongs to the community that benefits from this service? It’s careerists who want to bike to work without fear of getting plowed by a right-on-red minivan driver who isn’t paying attention. It’s pedestrians who are tired of playing chicken with amateur cyclists who ride on the sidewalk because they are afraid to ride on the street. Do they want to make a killing off their investment in your company? They probably wouldn’t mind. Is money their primary reason for investing in your business? Absolutely not. They want to see your service succeed because it you’re solving their problem.
Entrepreneurs on the United Kingdom’s dominant equity crowdfunding site, CrowdCube, attest to the importance of their communities to their crowdfunding campaigns. The CEO of Righteous salad dressing company, Gem Misa, admits in a BBC interview that she expected her equity crowdfunding campaign to be “more of friends and family…but I was so amazed that people have heard about the brand and wanted to be able to be part of it.” Sue Acton founded Bubble & Balm, which offers fair trade body care products in the UK. She explains that equity crowdfunding “is about getting a group of people together who all have a vested interest in your company.” Those people with a vested interest in your company are your best crowdfund investors.
So how do you find and rally your best crowdfund investors?
Step 1: Build your business around a community. You already did this step. It just means that you serve a particular group of people with a particular need.
Step 2: Figure out how to resonate with your community. We’re not talking about finding the marketing slogan for Nike here. We’re talking about pitching a crowdfunding campaign. Here’s the thing: your product does not make you special. Anybody can find and fill a need. To attract your best crowdfund investors, you have to build a brand that resonates with them.
Remember that your community has something more than needs: all of the people in that community share some values, and the community as a whole has ambitions. You want to speak to all those pieces of the community to gain their loyalty.
Let’s pretend again that you’re building a service that identifies safe streets for bicycling in the city of Miami. What do your investors value? Well, bicyclers and pedestrians value their personal safety. They might also value exercise or protecting the environment. So when you’re pitching your business to investors, you want to highlight how you’re going to benefit their exercise regimen or their crusade against fossil fuels. Connect your business to the benefits that they care about.
Let’s look at ambitions. We know what the individuals in our community want; what do they want as a group? Maybe they want to grow. Maybe they want there to be more bicyclists and pedestrians. Then the bikes can’t ride on the sidewalk because there are too many walkers, and the cycling community has more size and strength to demand bike lanes on direct routes to their destinations. If you align your business with the ambitions of your community, you’ll become a leader for them, and they’ll stick to you through thick and thin.
Step 3: Find your community. For your startup or small business, the solution is actually not to start a blast advertising campaign right now. Investors make a bigger commitment than customers, and they have to trust and support you more than just a customer does. Start with your own connections within the community you serve; if you’ve done your homework right, your idea will resonate with them and they will share it with other people in the community that they know. Your business pitch is more credible coming from not-you.
Let’s return to the bike service example. You start by talking to people you know who bike to work or walk to work. If you don’t know anybody else who does that, talk to your friends who say they would do that if they didn’t fear for their lives. Go to a cycling meetup through meetup.com. Talk to some people there. Don’t just had out your business card to 200 people. Instead, make a connection with 3 people and follow up with them. Make sure that at least one of them regularly does this cycling meetup group. Later, that person will talk to his meetup connections about you, and your pitch sounds more credible when it comes from someone else. Word-of-mouth advertising is more effective than any other type. Use it constantly.
Step 4: Include anybody in your community who wants to get involved: not just community leaders and highly visible members. Though these are the people spreading the word, non-leaders will want to want to invest in you. Most of your funding will come from non-leaders. Why? Here’s why. You have something extra to offer those people. You offer them the opportunity to make an influential contribution to their community that they don’t already make. The visible ones are already giving back. They might support you, but they don’t need you in order to feel like an influential part of the community. Maybe the non-leaders don’t have time to help run the community, or maybe they’re too shy. By investing in you, they get to make an impact anyway. People value that.
Step 5: Direct your community toward your equity crowdfunding campaign. Oh yeah! Steps 1-4 precede your equity crowdfunding pitch. They help you plan the perfect pitch (Step 2) and spread the word (Step 4), but they’re all pre-pitch. So once your pitch starts, you already did the hard work. You identified your community, you profiled them, and you connected with your crowd investors. Now you show them where to go.
The people you reach will bring in like-minded people and create a following around your business that only grows stronger. Equity crowdfunding gives you the chance to be more than just a business owner. You get to help a community of people accomplish their goals. That’s the final fulfillment of entrepreneurship after all – to play a defining role in something you care about. To be the first. To make a difference. And if you approach them correctly, the people you want to help can now help you.