The way entrepreneurs raise money is about to change. The Securities and Exchange Commission is drafting regulations for equity crowdfunding – a not yet legal practice allowing companies to sell stakes to large numbers of small investors, potentially online. Startups looking to pursue those dollars will need to think differently about how they present their company or product to the multitudes, experts say.
Here are some tips for making a compelling crowdfunding pitch:
1. Your story should be authentic, clear and concise.
“Crowdfunding allows an entrepreneur to make a connection with many investors,” said Rory Eakin, chief operations officer of San Francisco-based crowdfunding start-up CircleUp. But unlike pitching to a small group of venture capitalists who may have an idea of your track record, potential crowdfunders may never have heard of you — so it’s important to explain “as clear and concise [as possible] why you have the expertise to execute your business plan successfully,” he said.
Your pitch should also build your credibility as a trustworthy person, because “people are more comfortable investing in people than they are in businesses,”said DJ Paul, chief strategy officer of San Francisco-based crowdfunding platform crowdfunder.
2. Don’t assume your audience are experts in your field or in investments. Provide potential investors with all information relevant to your business.
While VCs are experienced investors, some potential crowdfunders may never have invested, Paul said. A successful pitch will provide investors with all information they could possibly need about the business and the market — but it will do so in layers.
“Start with the big sexy points, which are easy to digest. The next layer of information gives more detail. In the third layer, assuming you haven’t lost your audience, go as detailed as you possibly can” — because an investor interested in supporting your business will likely not invest without seeing all available information, he said.
If you’re a consumer product company, “the best strategy is to address someone as the consumer of the product before you pivot them” to the investor role, Paul said — the beginning of your pitch might emphasize the usefulness of your product before getting to the benefits for the investor in another layer. But if your area is business-to-business, it’s important to build a familiar context around your service, because some potential investors may not be experts in your field.
3. Choose your audience .
Online crowdfunding platforms may allow investors to stumble upon your business’ pitch, but you can’t guarantee they’ll be interested in your field.
Instead, you can target an audience you know will be interested by sending your pitch to specific networks via e-mail, Facebook, and Twitter, said Slava Rubin, chief executive of San Francisco-based crowdfunding platform Indiegogo.
“Don’t pitch into the dark,” he said, explaining that although you may not have the “warm intro” you might have for a VC pitch, you can still seek out crowds of investors instead of waiting for them to find your pitch online.
4. Show the investor what you already have.
Pitches gaining the most traction are those that already have some success, Eakin said — being able to show investors quantifiable sales data or positive interest from customers, will increase an entrepreneur’s credibility.
Depending on your business, you may even want to hold off on posting your pitch until your business is more developed — so investors can have a clearer idea of where their money will go, Eakin said.
5. Choose the investment platform carefully.
“It’s incumbent upon the company to make sure they know who they’re working with,” Eakin said.
Look for platforms and investors who you trust — and based on other projects funded on the site, the profile of investors, and the founders’ expertise, you should choose the platform that will give your project the most traction.
But “the pitch may vary from platform to platform, product to product, and business to business,” Paul said, so some flexibility is required.
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