This week's expert roundtable featured Adie Akuffo, head of WeFunder’s venture partner program, who spoke about the how’s, why’s, and what’s of equity crowdfunding.
The idea first bloomed in 2012 when a few “radicals” wanted to invest in their friends and families but weren’t accredited. They ended up creating a petition which led to the JOBS act and the concept started gaining mainstream traction by 2016. The biggest takeaway at that time was that “individuals were mostly jumping into earliest stage companies that were coming onto the platform and raising from friends and family.”
So who's a good candidate for equity crowdfunding?
The main criteria for a successful campaign is that founders need to have a community - “I would say something we are currently seeing is that if a company doesn't have a community or individuals who are already interested in investing outside of the platform then it's very difficult for them to raise funding on our platform.” Essentially, founders need an “army of evangelists” who can champion the product for them.
Other companies that make good candidates are those that have interested investors who don’t want to commit those big checks yet - “usually during this time it's individuals who are like, I think you're a little bit too early but I still want to invest so here is a smaller check, boom, WeFunder.”
How does a campaign work?
WeFunder has an audience base of 1.4 million. Once a campaign hits $100K, they start doing digital ads and spend up to a thousand dollars to gauge the return on investment before funneling more money into marketing. As Adie puts it “the more money they[founders] raise, the more money we [WeFunder] makes so it's a win‑win here.” Eventually the company puts in more incentives based on raise goals, so on and so forth.
How are investor pay-back expectations different?
“Most individuals who are consumers know that it is going to take 5 to 10 years for you [founder] to exit at some point in time and so they are not pushy whatsoever.” Essentially retail investors put in money because they believe in the founder so are more comfortable getting returns based on your timeline unlike “ traditional VCs where it's more or less like these are the expectations I have for you.”
What is the biggest risk founders should know about before committing to equity-crowdfunding?
The biggest hurdle is definitely prestige because traditionally VCs advise against retailer crowdfunding. However, with growing momentum, this method of funding is becoming a tool to create leverage - “I've actually seen individuals use equity crowdfunding to raise from VCs where [founders] raise half of their round through the community employ that as support to get VCs to agree to their terms.”
Another bridge to cross is the fear of failure - “ I don't want to raise capital, um, and go public in front of friends, family, and then fail.” The recommended approach is to reach-out to those you already know are interested in the deal and ensure you are able to hit that 50K minimum. From there it is a marketing game to show that “we have hit every single goal we've set so far.”
What does a traditional, successful marketing campaign look like?
Adie’s general advice was to start by reaching out to your general network first through email/newsletters where you softly introduce them to the concept of your company looking to raise a community round. Conduct an open AMA session where potential funders can get a deeper look into the product, see if any of the attendees are interested, and then target that group on WeFunder.
What does the timeline look like?
“You are probably going to want to allocate a week to get the initial promo video done, and to create a social media post agenda.” Use the same time to also set-up alerts when someone invests and auto send them a huge, thank you letter before asking them for a short video explaining why they invested. Make your media strategy authentic, and as Adie put it - “content is king." The campaign itself takes 30 to 90 days when raising the first 50K and once you have hit your milestones, invest sometime into quarterly reports sharing growth metrics.
What is the average ratio between the amount of the money that a founder can expect from their own community compared to the larger WeFunder one?
“We have kind of seen all attitudes but in general it’s a 40:60 split where 40% comes from the founders network and then 60% comes from WeFunders network (because it has larger check sizes).”
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