How To Prepare For a Successful Crowdfunding Offering

Ryan Flynn | August 24, 2016


Localstake is a sponsor of Locavesting

Many startups and small businesses in need of growth capital are eyeing the new crowdfunding laws, which let them raise money from lots of small investors. It’s a great new option, but can be difficult to master. A successful crowdfunding offering (like any offering aimed at retail investors) involves synthesizing many disparate, underlying tasks into one (relatively) smooth process. That requires careful planning and preparation. Not sure what to expect? Read on as we outline the three main phases of a successful crowdfunding campaign.


1. Provide a good explanation of your historical financial performance.  If you’re an operating business, highlight key performance indicators (KPIs) and high-level financial metrics, including revenue growth and profitability margins. Focus on cash flow or, if you’re a startup, milestones that you have achieved to date that indicate you’re on your way to cash flow.

2. Create logical, defensible projections.  Financial projections are educated guesses, but the more educated they are the better chance you have at raising funds (and returning those funds according to plan). Projections that are rooted in historical performance and relevant industry and comparable company data are key.  The projections should support the overall qualitative story of your business.

3. Identify the structure and terms that make sense for your business. Based on your projections, how much capital do you really need? How will those funds impact your cash flow growth? What is the cost of those funds? Is debt or equity a better fit? What kind of debt load can your business bear? How will investors get paid back? Think through these questions and analyze how different scenarios impact your outcome before going to the investor market. That will help you better understand your goals and target investor audience, and you’ll be able to navigate the process quicker.


1. Now that you have a plan, how do you validate it? Seeking feedback on your terms from some prospective investors can provide a sanity check and establish early market validation and momentum. Getting your info out to a big enough sample size, measuring engagement and feedback, and making necessary adjustments in a timely manner are key. You’ll want to focus on your immediate network for this step in the process and reach out to people that you trust or that are 1-degree removed. Often times, early market feedback from an initial set of investors can lead to important changes to your terms that make the difference of between a successful funding and a failed offering.

2. Comply with the rules. Once you’ve validated terms, it’s time to pin down the regulatory plan and the legal docs you need to provide investors.  Are the new general solicitation paths right for your offering? If so, your regulatory plan and documentation will be specific to those routes.  Don’t shortcut this step! Providing the right disclosures to the right investor audience is a mission critical component in the process. Failure to completely comply with disclosure requirements can lead to real issues for the business in the future.

More from this series: For Crowdfunders, Revenue Sharing Can Have Benefits Over Equity

Five Common Misperceptions About Regulation Crowdfunding

3. Sell it. Once you have a live offering ready for review and investment, you’re in full sales mode. Get in front of as many people within your desired investor audience as possible. Measure engagement and interest levels to get to quick no’s or surface key questions to address. Identify themes that are developing.  Have a way to determine who’s really interested and where to spend your time in follow up. Build a referral process so people can introduce you to others and you can get 1- and 2-degrees beyond your initial network.


1. Reporting. Congratulations! You’ve closed on the funds. But the process doesn’t stop there. You’ll need to establish a program to communicate and report back to your investors on a regular basis. The more investors you have, the more formal and pre-planned this needs to be. Design a repeatable process that focuses on key KPIs and brief commentary that can be distributed on a regular basis. If you conduct your offering via an intermediary portal, like Localstake, the portal will often provide tools to help with creating and distributing reports. And don’t forget to remind investors how they can help you grow sales and contribute to the success of your business (and their investment!)

2. Get organized around taxes. Make sure to have key tax documentation (1099s or K1s depending on the investment structure) readily available so investors can easily fold their investment into their annual tax reporting.

All of the above are critical, time-consuming and in some cases expertise-dependent tasks. You may want to seek help in one or more of these areas to get good advice and to ease the time burden on you and your team. Going full DIY may seem like a cost-saving approach at the outset, but can wind up costing you more time in the long run and leading to bigger issues in the future. The right planning and preparation will help the process go much more smoothly and increase your chances of success.

Ryan Flynn is a cofounder of Localstake, a full service broker-dealer and crowdfunding platform that helps small businesses structure their securities offerings and connect with investors.


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