Reasons Investors Don’t Support Your Crowdfunding Campaign

So you’ve recently started your crowdfunding campaign, congratulations! You’ve done your homework, all the business plan fields are filled in, and you’ve sent out your first mailing, but no ones investing. Why not? Here are some reasons investors don’t get on board.

You

Investors want to be sure they can trust you. Make sure you have a personal, well-developed profile that inspires trust and a personal connection. Don’t be afraid to mention you’re a “proud father of two sons,” but don’t forget to mention you’ve done some pretty hefty work as a marketing manager in the field you’re currently crowdfunding for. Starting off in a field you don’t have any experience in? Make sure to mention the team that does have the experience and how you’re going to lead them to success.

This didn’t work? Always make sure people can contact you directly via e-mail or phone. Answer questions immediately and work on the relationship you have with your funders. Both during and after the campaign, investors want to be involved. Ignore them, and they’ll ignore you.

Your pitch video

You video clearly explains the product and in addition, it has a great animation about the revenue model and scalability. In fact, the entire pitch video is animated so it looks playful and smooth. To bad, because animation isn’t what gets you funded, you are what gets you funded.

It’s perfectly fine to animate part of the video or the entire video if appropriate, but make sure you introduce yourself. Include not only the product or business plan, but also the incentive that investors can expect. Selling equity? Mention the expected value increase of the shares and possible dividends. Crowdfunding an actual product? Mention the extras they’ll get if they up their investment from $20 to $40. The video shouldn’t be about explaining your plan; it should be about involving them.

No clear vision on company development

It’s great that you’re developing the next big app, but an app doesn’t define company. A lack of vision concerning company development is alarming to investors because they’re usually in for the long haul. If they invest in your company by lending you money, buying equity or buying your product they’ll receive after three months, they will want to know you’re capable of keeping alive your company for an extended period of time. Make sure you’re capable of clearly communicating what kind of company you want to initiate, what you want to achieve and how you’re going to achieve it.

Lacking input from the entrepreneur’s side

If you want people to invest, you’ll have to make sure they believe in you and your plan. How are you going to show you plan is worth believing in if you didn’t invest yourself? Make clear what amount of money, time, and resources (working places, material, office supplies) you’ve made available for you company.  Did someone you know and not you make the investment? Show your investors that even when you don’t have the means to do it yourself, you have the skill to convince and arrange other people to do it for you.

Asking for too much money

As a good entrepreneur you’re well aware you’ll make mistakes and they’ll cost you money. So just to be sure, you’re trying to gather $100K instead of $50K? Think again. Asking for too much money only shows that you don’t have a clear plan outlined on which you can base you expenses. So asking for too much money, only signals you don’t know what you’re doing.

Is it wrong to ask for more? No, but be reasonable. An increase of you capital goal to 100% in case you make a mistake is not a good sign; try to keep the extra capital around 10%. There is no exact percentage that all investors agree upon, and while some say 10% is too little, others claim it is too much. The point is you show investors you’ve thought about additional costs, and you have a tight grip on your wallet and a clear view on what you plan is going to cost them.

Want investors? Be in control!

Show that you have a grip on your company’s development and make it plausible that you can give your investor a decent return on their investment, in whatever form. Be concrete and enthusiastic, and assume you’ll make mistakes. Acknowledge and chart the risks and show your investors how you’re going to deal with those risks. The focus of your story should be on the relationship you and your investors are building.

This article has previously been published on CitizenTEKK

Equity Crowdfunding Needs Educated Investors

Crowdfunding is hopelessly dependent on traditional funding sectors to educate a new generation of investors and fully develop the industry.

Locke Education 1693

The alternative funding industry values its’ own innovative and somewhat ‘rebellious’ character – two characteristics the traditional financial industry isn’t well known for. On top of that, “the wisdom of the crowd” is going to guide crowdfunding towards full development. I wonder what “wisdom” is referred to, as most crowd-investors are not at all educated enough to estimate company success rates.

Larger investors, with whom I’ve spoken a lot as a campaign manager for Symbid, often consider crowdfunding a drop in an ocean, or simply “fun”.  And large investors are right in saying so. According to The Economist, after 2008 USD 2.2 trillion less has been lent then in the previous years. While the traditional industry is capable of experiencing such enormous losses, the alternative sector still has to develop the size, which should have accumulated around USD 5 billion in 2013. 

The lack of recognition of crowdfunding as a serious industry often tempts the crowdfunding industry to emphasize their assets as “real” industry, featuring bold headlines proving crowdfunding matters and basking in the glory of growth percentages like 81%. Though it might be true that the traditional industry is not featuring, banks, VC’s, investment clubs, Angels and Angel Networks and online investment platforms have a lot more experience of funding trajectories, knowledge about specific industries, risk calculation, the meaning of (startup) KPI’s in company development and startup survival rates(which are pretty low, only 50% is still existing after year 5).

This is knowledge the crowdfunding industry desperately needs if it want to develop into the grown up industry it claims to be. So what can we learn from these financial giants and how can we create a hybrid funding process where both investors and entrepreneurs gain maximum benefits?

The crowd is not accredited for a reason

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Though accreditation of investors is admittedly holding back the (U.S.) equity-industry, making accreditation of investors a frustration for many, there’s a reason this legislation exists: to protect investors. Though money limits are no way to ensure the investor has enough knowledge, some form of protection is needed. Society was outraged when we found out what ‘banks had done to us’, by selling us flawed financial products without properly informing their customers. The crowdfunding industry is doing exactly the same thing.

The industry hasn’t fully developed yet and we’re not sure about the exact rules of the playing field, yet we ask investors for money without giving them the proper education to make informed decisions. Investors trust that their money is well spent via crowdfundingplatforms. The attitude of some platforms stating they are in no way responsible for failed campaigns is at least partially untrue and most certainly an easy way to let down end endanger investors. Platforms and crowdfunding experts have the obligation to educate new crowd-investors about the risk they’re taking.

Crowd-investors cannot perform due-diligence

Even if crowd-investors want to double check their investment, this is often hard. Most investors understand their money is put into a high risk- high return project, they don’t know what makes a company flawed and when they do, they don’t have the tools to do so. Where VC’s have financial officers that can do a check, or are generally well informed about success rates in a certain industry, crowdfunders generally don’t have this information or a decent financial background. They have to make a decision based on a digital business plan, a pitch video and some financial projections that could be true, or not.

They don’t have a financial background

Discounted Cash Flow Valuation Firm ValueBefore you drive a car, you have a decent intake process which leads to you understanding what all the buttons you press actually do. You gain insight in traffic behaviour and learn to read the signs. Likewise, VC’s, banks and Angels make sure they understand business finance before they invest money. They understand not only the differences between debt and equity, several liability, securities etcetera, but also how internal financial developments influence the success rates of companies in different life cycle stages. Not something most crowd-investors are fluent in.

Crowd-investors have wrong expectations 

They expect money fast. Investing is not like lending money, the payback takes somewhere between 3 to 7 years at least. Instead of a quick win, portfolio management requires patience and resisting the urge to dive in deep when mass hysterics spread (“I want to sell my shares nów”). Speaking of portfolio management and spreading risks: most crowd-investors only invest in one or two propositions without giving prior thought how to make the most profit on the money they have available.

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A good exit is hard

Currently investors are locked into their investment most of the time. This doesn’t have to be bad as an investor will have to wait for his exit quite some years anyway. However, when the time is there, it’s hard to sell the shares in equity-funded companies unless there is one large investor taking over all the shares at once. The other problem about exits is that most crowd-investors haven’t even thought about that. In the years working for Symbid, I’ve only seen this question a few times, which is a really serious issue because it indicates investors don’t know how to make money on their shares, how a good exit is defined and when they indeed should sell their shares to optimize their benefit.

There’s no industry knowledge 

Generally crowd-investors have industry knowledge about the industries they’ve worked in themselves but it’s reasonable to expect investors not to stick to only those industries. In addition, even when they do, they usually have no idea about starting a business in that industry. Most of the crowd-investors are employed and don’t usually industry performance KPI’s (how many members within what period of time, etc.) at hand. Of course the business plan should rule out the most important questions, but investors have to assume that data is correct or depend on knowledgeable investors to share their questions with entrepreneurs and other investors.

Crowdfunders invest in products, not in teams

As Rags Srinisavan from Iterative Path has correctly pointed out, VC’s don’t invest in products but in teams. And though “the team” might produce a great pitch video, there is hardly ever a face-to-face meeting unless the investments are substantial. This can be often successfully devised via pitch events and the like, but most of the crowdfunders invest in a pitch based on the pitch presented, the ROI and whether or not they judge the product or industry to be interesting to them. However, no matter well the business plan has been developed or how stringently the financial test, if the founders end up fighting or the team breaks down, all the plans are worthless.

So what do we need from traditional funders? 

In one word: guidance. Crowdfunders have the right to make well informed investments. There will always be a difference between the ways traditional and alternative funders decide to invest: it’s what makes the two funding strategies inherently different.

AngelGuidance from Angels, Angel Networks, banks, VC’s and other consists of sharing knowledge, for example, explaining the reasons why they did or did not invest in specific companies. Or better, make an investment in a crowdfunding proposition and share what they liked about it and what not, and what chances of success they think the startup has.

Another way traditional funders can help crowd-investors is by performing a (first) due diligence. Though a VC might not want to take it all out for a proposition he won’t invest in anyway, a handout in terms of focus points that investors should try to aim at is very achievable. Asking a traditional funder to give a pitch a “Go/ No Go” and publishing it (“This startup received a “Go” from our VC/ Angel team”), is a sign for crowd-investors a professional with the same interests as they have, increasing the investors’ security and the chances of success for the entrepreneurs.

More options are an educative forum or program for crowd-investors and professional investors, to professionally track crowdfunding developments (e.g. how many crowdfunded companies still exist after x years?, is the crowdfunded money used to its intended goal?, etc.), creating affiliate programs between crowdfundingplatforms and traditional institutes (like crowdfunding as a first phase towards debt funding via the bank) and integrating the overall crowdfunding industry as part of a hybrid funding trajectory.

This article is not at all meant to describe crowdfunding investors as a bunch of uneducated people who should keep their hands off crowdfunding and investing. On the contrary; it’s a great development that people now have the freedom on how to invest their money. But alternative funding experts should definitely work towards a more professionalised, better informed and safer version of the current crowdfunding landscape if we want to create sustainable value creation for our companies, investors and our economies. The best way of doing that is looking at sectors who’ve already built up an immense industry: the traditional funding industry.

This article was previously published on CrowdfundInsider

Reasons Investors Don’t Support Your Crowdfunding Campaign

So you’ve recently started your crowdfunding campaign, congratulations! You’ve done your homework, all the business plan fields are filled in, and you’ve sent out your first mailing, but no ones investing. Why not? Here are some reasons investors don’t get on board.

You

Investors want to be sure they can trust you. Make sure you have a personal, well-developed profile that inspires trust and a personal connection. Don’t be afraid to mention you’re a “proud father of two sons,” but don’t forget to mention you’ve done some pretty hefty work as a marketing manager in the field you’re currently crowdfunding for. Starting off in a field you don’t have any experience in? Make sure to mention the team that does have the experience and how you’re going to lead them to success.

This didn’t work? Always make sure people can contact you directly via e-mail or phone. Answer questions immediately and work on the relationship you have with your funders. Both during and after the campaign, investors want to be involved. Ignore them, and they’ll ignore you.

Your pitch video

You video clearly explains the product and in addition, it has a great animation about the revenue model and scalability. In fact, the entire pitch video is animated so it looks playful and smooth. To bad, because animation isn’t what gets you funded, you are what gets you funded.

It’s perfectly fine to animate part of the video or the entire video if appropriate, but make sure you introduce yourself. Include not only the product or business plan, but also the incentive that investors can expect. Selling equity? Mention the expected value increase of the shares and possible dividends. Crowdfunding an actual product? Mention the extras they’ll get if they up their investment from $20 to $40. The video shouldn’t be about explaining your plan; it should be about involving them.

No clear vision on company development

It’s great that you’re developing the next big app, but an app doesn’t define company. A lack of vision concerning company development is alarming to investors because they’re usually in for the long haul. If they invest in your company by lending you money, buying equity or buying your product they’ll receive after three months, they will want to know you’re capable of keeping alive your company for an extended period of time. Make sure you’re capable of clearly communicating what kind of company you want to initiate, what you want to achieve and how you’re going to achieve it.

Lacking input from the entrepreneur’s side

If you want people to invest, you’ll have to make sure they believe in you and your plan. How are you going to show you plan is worth believing in if you didn’t invest yourself? Make clear what amount of money, time, and resources (working places, material, office supplies) you’ve made available for you company.  Did someone you know and not you make the investment? Show your investors that even when you don’t have the means to do it yourself, you have the skill to convince and arrange other people to do it for you.

Asking for too much money

As a good entrepreneur you’re well aware you’ll make mistakes and they’ll cost you money. So just to be sure, you’re trying to gather $100K instead of $50K? Think again. Asking for too much money only shows that you don’t have a clear plan outlined on which you can base you expenses. So asking for too much money, only signals you don’t know what you’re doing.

Is it wrong to ask for more? No, but be reasonable. An increase of you capital goal to 100% in case you make a mistake is not a good sign; try to keep the extra capital around 10%. There is no exact percentage that all investors agree upon, and while some say 10% is too little, others claim it is too much. The point is you show investors you’ve thought about additional costs, and you have a tight grip on your wallet and a clear view on what you plan is going to cost them.

Want investors? Be in control!

Show that you have a grip on your company’s development and make it plausible that you can give your investor a decent return on their investment, in whatever form. Be concrete and enthusiastic, and assume you’ll make mistakes. Acknowledge and chart the risks and show your investors how you’re going to deal with those risks. The focus of your story should be on the relationship you and your investors are building.

This article has previously been published on CitizenTEKK