Do Past Funding Rounds Matter For an Online Raise?
Some entrepreneurs are truly privileged when it comes to raising capital. They call three or four VCs, get an appointment to pitch the partners, fly to the boardroom, and walk out with a term sheet in hand. But for the rest of us, it’s time to stop daydreaming.
Raising capital is hard – particularly if your business isn’t in a trendy category or you didn’t attend the Ivy League. And traditional methods can involve hundreds of hours spent and cross-country flights for an uncertain outcome. Maybe you do get the meeting, and everyone sounds interested – only you find out later that you’re not the right fit, or too early into your startup venture, or any other manner of issue outside your control.
So what are your alternatives? Some try to bootstrap their business; but for many startups, raising capital is the difference between life and death. Another popular route is to raise funds from friends and family. After all, they know and trust you. But how far are you willing to put their money at risk? And what happens if you need to raise even more?
Enter equity crowdfunding. This new funding method is shaking up the old model and, in my view, may come to replace it. It started in 2016, when the SEC launched Regulation Crowdfunding (Reg. CF), allowing non-accredited retail investors – aka the crowd – to buy equity in early-stage businesses. Under the new rule, entrepreneurs looking for say $5M can now take control of the fundraising process by appealing to a mass-market of investors.
A key advantage of equity crowdfunding: you don’t necessarily need existing investors to attract new ones. That means you are the right fit (not always the case with VCs). All you need to do is launch a campaign on a funding platform, like StartEngine. From there, it’s just a question of how much time and energy you’re willing to put into crafting a compelling offering and carving out a well-defined audience. You’re the catalyst for the raise. That means, if you bring in one investor or one hundred, it’s based on your efforts alone – not the arbitrary decision of an institutional backer or the success or failure of past funding rounds.
A great way to start is by pitching your built-in community. These can be early adopters and, yes, family and friends too (though remember, you’re not depending on them for all your funding). You can also place ads on Facebook and other social media or pitch the press to write articles. And as you build momentum and buzz around your campaign, it can start to snowball. Again – it comes down to the time and energy you invest. The more you put in, the more you’ll take out.
The icing on the cake? You stay in control of your company. No giving away board seats or special voting rights. On equity crowdfunding, you set the terms, which means you can issue exclusively non-voting common shares.
Like I said, raising capital is hard. But the future of your company doesn’t have to be in the hands of a select few or, as is the case too often, crushed by a lackluster round in the past. With the crowd, you can take control of your own raise.