Having a killer business idea or innovation is not the only key ingredient to establishing a business. It’s necessary to have the right kind of funding to propel aspiring business ambitions into reality. Thanks to equity crowdfunding, entrepreneurs have more than one way to raise funding for their startup.
Though beneficial, crowdfunding is not always a straight road leading to success. In fact, this form of funding comes with a lot of challenges that all entrepreneurs should be ready to face. However, there are a number of things you can do in order to overcome the challenges associated with equity crowdfunding and take your business to the next level.
So, what are the challenges every entrepreneur needs to be prepared for when going down this road? What should entrepreneurs know about equity crowdfunding before they dive right in? Here are five key equity crowdfunding challenges and tips on how to overcome them so your startup can have a better chance of success.
1. Meeting Investor Expectations
One of the key challenges every entrepreneur faces when raising capital via crowdfunding is creating hype around their company. And if you are doing it right, you will also have to deal with the expectations that come with all that hype.
Worse still, there are investors who invest solely on projections or future potential without taking into consideration what your startup has accomplished.
To overcome this hurdle, be clear and transparent about what your company is all about and the milestones you have achieved thus far. Share with them everything that’s relevant to their decision to invest, from the problem you are trying to solve to how your product works and its benefits.
2. Building Trust Among Investors
Crowdfunding has been around for quite a while now, but it wasn’t until recently that it got its own place in the financial world.
For this reason, not all investors are knowledgeable about how equity crowdfunding works. They may occasionally be skeptical of your business model and this can present itself as distrust when you need them to trust you most. Knowing that they might trust an experienced investor more than they would trust you may stop them from investing in your company.
You can overcome this challenge by knowing your business and how it will solve a problem better than others. You should also be able to tell a captivating story that demonstrates why they need to invest in your startup above the rest.
3. Knowing How Much Money to Ask For
One of the challenges every entrepreneur faces when it comes to raising capital via crowdfunding is figuring out how much money they should raise. While you might think that this is just a simple matter of deciding how much money you need to invest in your startup, there are other things that come into play, too.
For instance, there are some investors who think that a high valuation makes a company less risky to invest in. This means you have to convince them of the lower valuation which can be challenging especially if your company is still getting started. There are also those investors who consider the amount you plan on raising as part of their return if they choose to invest.
To overcome this challenge, look for entrepreneurs who have gone down the route before and ask them how much they raised. This will help give you a hint on the amount of money to raise. You should also consider your company’s valuation so as not to exceed that amount by going overboard with your fundraising goal.
4. Choosing the Right Platform
As one of the most popular ways to raise funding, equity crowdfunding has attracted quite a number of players in this market. As an entrepreneur looking to raise funds for your startup, you will need to consider which platform is best suited for you and your company.
Since there are quite a number of platforms available out there, it’s not always easy to spot one that will give your business some exposure. The good news is, not all crowdfunding platforms are made the same! Some might be appropriate for startups looking to raise seed funding, while others are more suited to companies that have a stable product and need cash to start mass production.
You can never tell which platform will be best for your company until you try them out. Visit as many platforms as it takes and don’t be afraid to ask questions about the various options they present. If you decide to list your offering on more than one platform, make sure you do it strategically. If they are all targeting the same investors; sending them to different platforms can be a waste of time and effort.
5. Protecting Your Unique Ideas
Every entrepreneur who has ever listed an idea on a network knows that there are few things more damaging to your company’s future than having another startup come along and use the same idea. Due to this reason, most entrepreneurs tend to be very secretive about their idea and avoid even talking about it.
To overcome this challenge, find a workable balance between being secretive and having enough information for investors to understand your business. Identify any part of your idea that can be protected by copyright laws. If there is, file for copyright immediately. Make key persons sign a nondisclosure agreement who have access to sensitive information about your idea. Once you have that in place, be open about everything except for the product itself or how it works.
Knowing these challenges and how to navigate them can help you a great deal and prepare you better to raise funds via equity crowdfunding.
If you’re ready to jumpstart your campaign with expert crowdfunding consultants on board, contact us today! We’ll help you navigate each stage so that raising capital becomes easier than ever before.