By Vanessa Malone
Last week we talked about the rise of equity crowdfunding. This week we wanted to share some of the benefits of including this form of capital raising in your company’s early-stage growth strategy.
1. Access to capital
Prior to crowdfunding, start-ups and small businesses would typically look to bank loans, friends and family, or begin going into credit card debt in order to access capital. It is also very difficult for early-stage companies to attract venture capital.
Equity crowdfunding provides an innovative option for companies to cast a wide net into a larger pool of potential investors. The average person aged 18 or over, with a few restrictions, can make an equity investment in your company online with just a few clicks. Instead of a couple investors giving large amounts of capital, you can enable the crowd to give small amounts that add up to your capital raising goals.
2. Creating strategic brand ambassadors
The odds of getting VC funding varies but repeated figures estimate that only 0.6 - 5% of start-ups raise VC funding. Instead of initially spending money, time, and energy on getting a meeting with a VC firm or an introduction to an angel investor, equity crowdfunding can be a great option. You’re killing two birds with one stone, simultaneously raising capital while creating strategic brand ambassadors with a vested interest in the growth of the company.
Further, your ability to attract fans who support your story and believe in you enough to invest helps to demonstrate that the market approves of your concept, which can help attract venture capital or create momentum for future funding rounds.
3. Increasing brand awareness
An equity crowdfunding campaign is essentially a large marketing campaign for your company. Successful campaigns take a multi-channel approach to attract the largest number of investors with social media, email, paid ads, and other digital materials.
This process helps to truly refine your messaging, vision, and even products. Why? Because if your business model and story isn’t easily understandable or convincing, it will have a direct impact on the success of your equity crowdfunding campaign. Creating a pool of fans and customers, existing and new, will enable you to gain invaluable feedback as you grow and scale.
4. Capital raising on your own terms
Equity crowdfunding is a great way to raise capital on your terms. You control the amount of equity you’d like to sell, your valuation, share price, etc.
This method can also allow you raise capital without giving up a large percentage of your company or decision making abilities.
5. The infrastructure is here and maturing quickly
The infrastructure for equity crowdfunding has matured quickly despite it being only a few years old. Companies interested in this path can find lawyers, one-stop shop technology solutions, and advisors who specialize in Reg A+, Reg D, and Reg CF offerings.
Equity crowdfunding is part of the exempt securities market, which has surpassed registered securities offerings when it comes to new capital raised in 2019. We expect this trend to continue.
In conclusion
While the above share some benefits, there are still a few hurdles when it comes to equity crowdfunding. Despite the hurdles, we are confident the industry will continue to grow as more people are educated about the process, as favorable regulation continues, and as the market continues to mature.
If your company is seeking to conduct a securities offering, Horizon offers a one-stop-shop from primary issuance, KYC/AML investor onboarding, custody, all the way through to secondary trading. Visit us at https://www.horizonfintex.com/ or email us at horizon@horizonfintex.com for a demo.
About Horizon:
Horizon offers a suite of integrated securities software applications for compliant issuance through secondary trading of electronic securities. Truly a compliance-first business, our solutions combine Wall Street and Silicon Valley to power the next generation of exchanges and securities offerings in the U.S. and globally. Visit us at https://www.horizonfintex.com/.
