Five Equity Crowdfunding Myths – Separating Fact From Fiction
Equity crowdfunding myths come from nowhere and quickly spread everywhere, often costing those operating with these false notions dearly.
Myth #1: Equity Crowdfunding is a quick, easy and cheap way to raise money.
This is the deadliest of the equity crowdfunding myths because it causes the most harm. Equity crowdfunding requires a substantial investment of time and money. There are the legal fees for all the SEC paperwork, paying a CPA for certified financial statements, and paying a designer for the collateral material for your crowdfunding campaign. With all of essential details out of the way it’s time to launch your campaign, right?
What’s your crowdfunding promotion budget? Is your marketing firm ready to roll on day one? Do you hear crickets? I always do.
This is where most crowdfunding campaigns run out of gas – right at the starting line. Campaign death is slow and certain. All the broke crowdfunder can do is watch the hours and days creep by watching the whole thing happen as a helpless spectator.
It is a fatal mistake to assume investors will magically find your campaign and instantly give you money. Don’t count on much help – if any – from a crowdfunding platform. Build it and they will come is bullshit.
Myth #2: I can’t equity crowdfund if I’m not revenue-positive
No, you don’t have to be revenue positive to stand a chance at equity crowdfunding. There is a kernel of truth here in that pre-revenue offerings have a rougher ride to crowdfunding success. A counter-strike to this is a brilliant business plan supporting the compelling product/service/medical breakthrough you’re dead certain is a game changer. Having a patent or two or three would be a big help. As long as you can convince potential investors that your trajectory is viable, your early-stage revenue won’t make or break you.
Myth #3: Equity crowdfunding is no different than seeking angel investors or venture capital
We could devote an entire post to the differences between venture capital, angel investors and equity crowdfunding, but here’s the one that arguably matters the most to startups: Equity crowdfunding enables entrepreneurs to raise capital on their own terms and bringing their deal to the masses. The VC world is the polar opposite; it’s a very small, very exclusive club of investors who basically own you before you start your pitch.
Myth #4: Mainstream investors have no interest in equity crowdfunding
Nothing could be further from the truth. This is another one of those equity crowdfunding myths that is the exact opposite of reality by it’s very nature. The mainstream public is catching on to equity crowdfunding and realize that the best shot at the next big startup is just as likely to be found in equity crowdfunding as anywhere else. If anything, a successful equity crowdfunding campaign can make your company more attractive to the mainstream investing community.
Myth #5: Equity crowdfunding should only be used as a last resort
Equity crowdfunding is far from the last resort. For many entrepreneurs, it’s actually advantageous to attempt to raise funds via equity crowdfunding FIRST. A successful campaign will give you much-needed growth funds, demonstrate market appeal, and set a precedent for your valuation ask—all of which will give you more room for negotiations should you turn to angel investors for your next funding round.
By 2025, the crowdfunding market is predicted to grow by nearly $200 billion, with a compound annual growth rate of over 15%. Don’t let equity crowdfunding myths stand in your way.