Equity Crowdfunding Insiders – How Your Friends and Family Can Get The Wheels Turning
In a previous post, we highlighted how the vast majority of startup founders rely on funding from friends and family to get their business off the ground, as opposed to securing venture capital financing, which is only available to a very small fraction of startups. In this article, we’ll discuss why friends and family investors are crucial to the success of equity crowdfunding campaigns and provide some tips on how to engage them effectively. Enter stage right – Your equity crowdfunding insiders.
Equity Crowdfunding Insiders Build Social Proof
Research has shown that crowdfunding campaigns that involve the founder(s)’ close network of family and friends tend to be more successful than those that don’t. This is because these investors play a crucial role in generating social proof, which is essential to building credibility and attracting new backers to a campaign. By sharing and promoting the campaign on social media, hosting launch events, and spreading the word through word-of-mouth, friends and family help create a buzz around the campaign that makes it more attractive to others. This social proof is what convinces new investors that the idea is legitimate and worth supporting.
Approaching Friends and Family for Funding
While it may be tempting to assume that friends and family will be eager to invest in your startup, it’s important to approach the matter with the same level of formality and professionalism as you would with any other investor. Because these investors are likely to have a personal relationship with you, they may not conduct the same level of due diligence as a stranger would, which means it’s up to you to provide them with all the information they need to make an informed decision. This includes having a clear understanding of the type of deal you’re offering, pitching your business in a formal meeting, providing a detailed business plan, and using formal documents to memorialize the relationship. When money changes hands among friends and family a lot can go wrong fast. Keep everything professional and follow through with your equity crowdfunding insiders just as you must with all of your investors.
Consider an Official Friends and Family Round
One way to engage equity crowdfunding insiders more effectively is to set up an official “friends and family round” of financing. This can help you leverage the relationships you have with your closest supporters to gain key early traction for your campaign, while also providing preferred terms for your investors. This approach can be particularly useful if you’ve already built up a strong network of supporters who are eager to back your venture.
In the end, remember that your friends and family want to help you succeed, and they may be more willing to take a risk on your venture than other investors. By approaching them with the same level of professionalism and formality as you would any other investor, you can help ensure that they make an informed decision and that your campaign is set up for success.
Check out these ideas for raising capital from your equity crowdfunding insiders.