Debunking common myths around equity crowdfunding

Feb 08, 2022

‘I can crowdfund to start my company’ - There have been lots of successful start-ups that have raised capital this way. However, you’re unlikely to succeed with just an idea. There’s a lot of competition and you need to stand out. You need carefully thought-out information materials; an investor deck, executive summaries, and financial projections/forecasts.You really need SOME traction, a list of achievements – something under your belt that you can talk to investors about, to show them how you got to where you are today, and why they should invest in you. If you think you have a brilliant idea for a business, that’s great, but go away and start setting it in stone. It may mean you need to look for other forms of funding first, and come back to crowdfunding when you’ve got more to talk about.


‘I can give my investors my product or service in exchange for shares’ - Equity crowdfunding is not the same as rewards-based crowdfunding where you can give investors your products or service in exchange for investment. Equity-based crowdfunding campaigns must be for registered, limited liability businesses that want to offer shares in their companies in exchange for investment. It is raising capital from the crowd through the sale of shares in your company


‘I’ll find all of my investors through the platform’ - crowdfunding campaigns are not to be considered a fall back method of funding. You need a network to tap into, and a strategy to do so. This will include the ‘friends you haven’t met yet’, the investors you’ll meet going through it. But, you will not simply launch a campaign on a platform and find hundreds of investors and secure your entire target. The lead up to any successful campaign will include a carefully constructed comms plan to ensure you pull the right levers, at the right time, with the right people. Securing those soft commitments in the early stages of a campaign is vital for it to succeed. The platform should only really be viewed as the tool via which to collect your investments and a way to access a new pool of investors you wouldn’t have otherwise had access to.


‘Crowdfunding will save my company’ - Unfortunately, if a business is failing it’s unlikely to be attractive to investors, at least those who typically support crowdfunding opportunities. If you don’t have a viable business, investors will put their money elsewhere. The harsh reality is that some businesses who crowdfund are still at risk of failing. Just because you’re passionate about your business, doesn’t mean every investor will be too. A crowdfunding campaign can steer you in the right direction and provide you with capital for growth, but the hard work is up to you and your team to grow and develop your business, incentivising investors to participate in your journey. 


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