Krishan Arora is CEO & Founder at The Arora Project, a globally recognized leader in crowdfunding & scaling high-growth ventures.
The last two years in the equity crowdfunding (ECF) space have produced unprecedented growth for founders and investors alike. 2021 has seen crowdfunding legislation finally catch up to the demands and realities of early-stage companies trying to raise sufficient startup capital. In many ways, we are only now seeing the true potential of this alternative route to funding. I think it’s safe to say that equity crowdfunding’s probationary period with the crowd is over.
Recent developments in ECF can help us understand the current trends as well as what the future may hold. My organization, the Arora Project, a crowdfunding agency, learned some insightful lessons over the past 12 months during a successful fundraising campaign leveraging an ECF platform. We’ll begin our discussion with some general industry performance numbers, then delve straight into our takeaways from the last 12 months.
2018-2020: The Calm Before The Storm
The recently published KingsCrowd Regulation Crowdfunding 2018-2020 Intelligence Report states that 2020 saw more than $210 million invested in regulation crowdfunding campaigns. This 110% year-over-year growth from 2019’s total funding is especially remarkable considering it happened during a global pandemic.
Equity crowdfunding’s rise began well before Covid-19 but actually multiplied during it.
Wefunder outpaced other platforms and raised $124.7 million between 2018-2020, placing them first in the KingsCrowd Intelligence Report rankings of private equity capital raises, followed by StartEngine and Republic. (Full disclosure: Wefunder is a partner of The Arora Project.) The KingsCrowd data set is impressive but does require nuanced interpretation to build truly insightful strategies.
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And while the SEC’s offering raise from $1.07 million to $5 million hadn’t even taken effect yet, investors and founders did not stand idly by waiting for the cap increase on March 15, 2021 — instead they eagerly took advantage of the means available to raise capital amidst this historic, life-altering pandemic.
Tips And Considerations For Raising Funds From The Crowd
Regardless of your investor demographics, there are several fundamental principles startups should follow for planning a strategic campaign:
1. Consider starting with a fairly substantial investment base: I recommend beginning with a solid monetary base (although every situation is different) in investments (often raised from friends and family) to generate that critically important social proof and FOMO from prospective investors.
2. Build awareness of your campaign: You can spread the word via podcasts, investor groups, and family and friends.
3. Drive paid media: Do this at the lowest CPC (cost per click) possible in order to create a large retargeting pool.
4. Hit the dollar threshold set by each crowdfunding platform: Once your campaign has raised a certain amount, the platform emails their networks of other investors to check out your campaign.
5. Savvy ad strategy: Facebook ads tend to bring in more revenue than Instagram ads. Aim for at least a 1% CTR (click-through rate) on prospecting campaigns.
6. Re-target strategically: As the campaign draws to a close, re-target with FOMO messaging to previous viewers who did not invest, to generate what can prove to be significant last-minute engagement.
7. Choose the right crowdfunding platform for your startup: Not all are created equal. Often the cheapest platform is not the one that will drive the most traction to your page. Take a look at platforms that align with your goals for scaling your unique startup.
The No. 1 Lesson Learned
It’s no coincidence that equity crowdfunding has seen such success over the last year. Pre-pandemic, equity crowdfunding’s momentum was a train that simply couldn’t be stopped. In 2020 and beyond, this funding route offers everyday Americans the opportunity to shape the post-pandemic economy for the world they want to live in. There’s a hunger for as many new ideas at the table as possible, and an equally high number of participants to back them.
I believe we haven’t even scratched the surface of what the regulation crowdfunding landscape will become.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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Author: Krishan Arora, Forbes Councils Member