Thinking of raising money through crowdfunding? Since the rules for Regulation Crowdfunding went into effect last May, 186 entrepreneurs have launched campaigns, attracting a total of $19 million in investment by year end. Crowdfund Capital Advisors (CCA) recently crunched the numbers to come up with some insights about what makes a successful campaign. Here are some of the top tips from CCA’s recent year end analysis.
Build Your Network
The larger your social network, the greater the pool of potential investors. According to CCA, you need a social network of 3,225 to raise $50,000. Want to raise a cool million? You’ll need more than 16,000 followers. Building a network takes time, and should start months or years before your campaign.
Choose a Simple Finance Structure
In the first seven months of Reg CF, many companies chose to offer SAFEs, short for Simple Agreement for Future Equity, a deferred stock purchase arrangement popular in Silicon Valley. But SAFEs haven’t attracted as much investment as other options. Easily understandable structures, including common and preferred stock, loans and convertible debt, and revenue sharing arrangements, all had higher average commitments. “Investors are clearly saying, I don’t understand what a SAFE is, or I don’t understand what’s in it for me,” says CCA’s Sherwood Neiss.
Make a Great Video
Just like on Kickstarter, a good video contributes to a successful equity crowdfunding campaign. Campaigns with videos attracted more investment capital than those that had no video. But quality matters as well, and a bad video can hurt more than help. Campaigns that had a poor quality video (as judged by CCA) raised very little. Neiss advises entrepreneurs to invest in a well produced video, whether an explainer video or one that tells a more comprehensive story, including the problem you’re solving, the team, the market potential and how you plan to use investors’ money.
A key feature of Reg CF is that funding portals must offer a communication channel so that investors can pose questions to a company before (or after) they invest. CCA found a correlation between this interactive engagement and the success of a campaign. Companies that answered all investor questions had a greater likelihood of getting funded, raised more money and had higher valuations.
Fundraise on a Wednesday
Investors are most active on weekdays. To date, Wednesday has been the busiest day for investor commitments, followed by Monday and Friday. Investor commitments trailed off on the weekends. In addition, investment tends to slow down during holidays and seasonally busy times, like the back-to-school season.