A recent behind-the-scenes conversation with our Marketing Team about why companies raise capital online using equity crowdfunding.
Why would a successful company want to raise capital from their customers if they can just raise from a single venture capital investor?
It’s completely transformative for a business to go from operating in a closed bubble (where they just have one or two investors), to suddenly having an army of thousands of people who literally have a vested interest in the success of the company. It takes time to find, create, and manage a community of investors, but there is a game-changing level of passion and excitement that can come from having a highly-engaged audience who are absolutely dedicated to the success of your business.
Does owning shares make them better customers?
Research into public companies has found that owning shares makes a material difference to how loyal people are to a brand. And we’re starting to see the same thing with private companies. Overnight you suddenly turn on thousands of people who really want to see your company succeed. They will give you feedback and help the company out by spreading the word. I think of share ownership as the ultimate customer loyalty program.
If you are not that into customer loyalty, or your business model is based only on one-off transactions, and word-of-mouth doesn’t matter to your company, then maybe this process might not be for you. But for companies where loyalty, word-of-mouth or reputation matters, then having an opportunity for your most passionate fans to become investors in the business is hugely exciting.
How much work does raising money online take?
It might seem like a lot of work to promote an equity crowdfunding campaign, but most of the steps are things that you probably should be doing anyway. You already know that you should be doing more behind-the-scenes videos with your CEO, or videos about your team, or redoing your brand and getting your collateral up-to-date, or getting the word out to bloggers and the press. Those are all the things you probably should be doing to build the reputation of your business anyway.
If you’re good at running your company and marketing your company, then:
- You should be doing promoting your company anyway so it’s not a duplicated effort to also include messaging about raising capital, and
- You should be pretty good at telling your story because that’s what you’re already doing every day.
By doing all of this promotion, you’re also creating a spike of general interest in your company.
As much as it looks like it’s hard work, the amount of work that goes into raising money from institutional investors can be just as significant. At SeedInvest, we love the strategic value that institutional investors can add. But if you spend all your time just focused on raising money from large investors, the fundraising process can become a distraction from the core business. By contrast, equity crowdfunding fits into your day-to-day. Traditional fundraising also tends to fall almost entirely on the CEO. Whereas raising investment from your customers is something that your whole team can help with.