So, you have an awesome idea for a product. You’ve built a small team, have a solid business plan in place, and are confident there’s a place for you in even the most competitive of marketplaces.
Now for the tricky part. How do you fund your idea? You have the option of seeking the support of your family and friends, but of course, not every founder is comfortable with this. You can connect with VCs, angel investors and the like, but we all know this is easier said than done.
So why not ask for money from complete and total strangers who happen to think your idea is pretty brilliant? According to Ryan Feit, the founder and CEO of the equity crowdfunding platform SeedInvest, this is undoubtedly the way to go.
“Fifty percent of our nation’s GDP comes from from startups, but 99 percent of our savings go to Fortune 500s,” Ryan says. “This is why it’s so hard to raise capital as a startup… This is the problem that we’re solving.”
Founded in 2012, SeedInvest now has a network of more than 4,000 investors who have an aggregate investment interest of $190 million. SeedInvest has helped fund innovative startups such as Vengo, Scoot, Virtuix, and Knightscope.
Taking advantage of Title II of the JOBS Act passed in September, Ryan’s team is streamlining the process of investing for both companies and potential investors, “looking to make investing in a startup as simple as purchasing stocks.”
Ryan recently hosted a Crowdfunding 101 Lunch & Learn at N.Y.C.’s WeWork 200 Broadway. Read why he’s so certain that equity crowdfunding is changing the fundraising game.
Creates room for more investments
“Instead of making awkward phone calls to friends and family, now startups can send a link to anyone and everyone using social media,” Ryan says. “We’re flipping the system on its head.”
And once one or two supportive Twitter users spread the word to their network of followers, a sort of “pay it forward” effect begins, eventually opening the door to a countless number of potential investors. Although the pre-JOBS Act SEC prevented companies from advertising their fundraising efforts, today companies can share such news through any and all channels, a sort of de-regulation that has turned crowdfunding into a $6 billion industry.
Take the brand Scoot, for example. One of SeedInvest’s early clients, the company provides a shared Moped service in the Bay Area. Fred Wilson, a New York city-based VC and blogger, tweeted about Scoot to each of his 340,000 plus followers while his wife Joanne wrote a blog post about the company, a joint marketing effort that helped Scoot raise $1.5 million from 6,000 customers.
Crowdfunding turns everyone into investors, even customers
Under current SEC regulations, only accredited investors can invest in startups, but once passed, Title III of the JOBS Act will allow any and everyone to become an investor (SeedInvest presently ensures all of their investors are accredited). Title III will also let startups receive support from an unlimited number of investors, meaning that similar to a Kickstarter campaign, startups can gather very small investments from a very larger number of individuals.
While the passage of Title III is still pending, Title II, which passed last September, has allowed startups to advertise their fundraising efforts, thereby empowering them to reach a much larger base of potential investors. And soon, using a platform like Seedinvest, consumer-facing companies will be able to easily invite their customer bases to invest, which, as Ryan explains will mean that “80,000 customers can blast an email to each of these individuals with an option to invest a few thousand dollars.” Do the math, and it’s obvious why customers will prove to be such important assets during periods of fundraising.
It can help companies generate a following
“Once customers can invest in a startup, they will become that company’s biggest brand ambassadors,” Ryan says.
Take Reading Rainbow’s Kickstarter campaign for example. The purpose of the campaign was to “Bring Reading Rainbow’s library of interactive books and video field trips to more platforms and provide free access to classrooms in need.” And their team offered items such as mugs, t-shirts, bumper stickers, and magnets to anyone and everyone willing to invest.
Not only did the campaign end up raising more than five times its $1 million goal, but also garnished the support of close to 106,000 incredibly supportive backers. In much the same way, once non-accredited investors can back a startup, it’s more than likely that these individuals will do their part to spread the company’s message.
“It’s important that businesses don’t think of success only in terms of raising a round,” Ryan says. “They also have to think about how they can best get the word out there.”
Crowdfunding means less time spent fundraising
Using a traditional fundraising model, startups are responsible for reaching out to their friends and families and seeking out their own investors. And as a new company with limited resources, it’s likely that the bandwidth to raise capital in this way is just not there.
However, crowdfunding platforms invite investments for startups from three primary groups: (1) family/friends, (2) investors, and (3) customers/crowds.
“We’re leveraging established investors rather than having startups seek these resources out themselves,” Ryan explains.
It serves as pre-emptive market research
Companies that do not crowdfund have to take ideas and products to market without any certainty as to how consumers will respond. Of course, some level of market research is conducted before any launch, but if a startup is able to pre-emptively attract customers’ monetary support, it stands to reason that there is some sort of demand for what the company has to offer. If an individual is willing to become a financial stakeholder in a company, it’s probable that once the company goes to market, he or she will become more than a loyal customer.
“Finding good startups is important,” Ryan says. “But to our team, finding investors who can support these companies is equally as important. Our job is to curate good investment opportunities and find ones that best match our network of startups.”
