This is Part 2 of our Series on “What Founders Should Know Prior To Equity Crowdfunding”. You can read Part 1 on “Marketing” here.
Over the last 7 years, I’ve raised $150mm for my own companies mostly via equity crowdfunding, whether it’s via Regulation A+, Regulation CF, or Regulation D. I’ve seen the good, the bad, the ugly and the best when it comes to all facets of setting up and running an equity crowdfunding (“ECF”) campaign. I’ve also worked with many of the major portals and technology providers and have raised for companies in various stages of their lives.
“If you build it, they will come” doesn’t usually work for an ECF. Spending money to promote your offering is a crucial part of a successful ECF fundraise, whether you like it or not. And it can be a very contentious topic….here’s what I’ve seen:
- You need something to kickstart your campaign
Whether you raise directly (e.g. Dealmaker, Dalmore Direct, Issuance, etc) or you raise on a funding portal (StartEngine, Republic, WeFunder, etc), you need something to kick start your fundraise. You can’t expect to launch a raise and have the money just roll in. There are two main ways to accomplish this 1) have a build in community to market your fundraise to or 2) spend on advertising to bring in investors. Not everyone company has a community or a large email list (e.g. B2B businesses), so they need to rely on paid advertising to promote the fundraise. This tends to be the case for most of the issuers I come across. Even if you are raising on one of the funding portals, which have a large audience of investors, these investors don’t tend to pile on to a deal until they see traction (e.g. social proof). So plan on either spending on ad dollars and/or promoting to your community, otherwise, your fundraise will likely never get off the ground.
2. The days of high ROAS are gone…for now
When I first got into the space, we’d see plenty of campaigns with 10/1 ROAS or higher (meaning for every $1 of ad spend you see $10 of investment). In the days of E-commerce 2.0, companies could easily build their businesses on paid social media and paid search with a low cost of customer acquisition, and then things changed. ECF is starting to experience the same thing, especially given that it’s grown a lot in the last years. Now you have way more issuers advertising across the usual channels (like Facebook, Instagram, Google, TikTok, etc) but not necessarily the same growth in people willing to invest. Plus as of the date of this article, we are in an economic downturn, meaning there are less people willing to invest, we are seeing lower average investments, and there’s been a difficulty in scaling ad channels.
People often ask: “What sort of ROAS do you think I can get on my campaign”? To which my answer is: it depends on how much you want to raise, how large (or small) your internal email list/community is, what your valuation is, and if this is your first or 5th time raising via ECF. Lots of factors to consider, but set reasonable ROAS expectations going in (see #3 below) and plan to spend more than you think. When all is said and done, hopefully you’re pleasantly surprised at how your campaign performed.
3. Marketing your fundraise also helps your business grow
Obviously, if you’re a B2C business or have a strong B2C component, it’s clear that marketing your fundraise will also help market your business and provide a strong halo effect when acquiring customers. However, this halo effect also applies to B2B companies as well. I’ve had countless potential customers, partners, and even prospective employees reach out to my B2B companies after seeing some ad, piece of press, or newsletter touting our investment opportunity. In one case, we actually hired a senior employee after he heard about our company via an investment ad. While founders may think that advertising a fundraise online only has one benefit (raising capital), rest assured that is not usually the case. You will be surprised about the other benefits and effects of your ad spend.
4. Don’t (always) believe what the others tell you on performance
This industry wouldn’t be where it is without a great set of vendors, providers, and partners. But oftentimes, they will try to sell you on their services and also your company’s potential to raise successfully. Be wary of being overpromised on campaign performance, especially ROAS, unless you’re speaking with someone who has seen a lot of deals and has also managed a lot of ad spend. You may be speaking to someone who just wants to sign more clients and is overpromising performance with the goal of getting you to sign. Make sure you get multiple opinions on your company’s prospects so you can go into the process with as much information as possible.
———
Atlas Rd specializes in guiding founders through the process of raising money via equity crowdfunding. We help oversee all facets of a campaign, including marketing, legal, regulatory/compliance, accounting, finance, and investor relations.
Interested in learning more about raising money online? Email us at info@atlas-rd.com.
Comments are closed