Three misconceptions about the equity crowdfunding process, according to PledgeMe co-founder Anna Guenther

One of our alumni spoke at an event recently about why he chose the equity crowdfunding path. He explained it so succinctly: “We had to decide if we wanted to be responsible to one big daddy investor, or a crowd we’d like to drink with.”

It may help that his business is craft beer, but I still think it’s a nice way of putting it. You should only get your crowd involved if you want them there.

In our sector, the government initially spoke of protecting ‘ma and pa’ investors when the legislation was first created. But we’ve seen diversity in those investing, anywhere from 18-93-year-olds who believe in the business they’re investing in.

It’s almost been a year since the government opened up equity crowdfunding beyond the 1% of unlisted public companies. And now we’re seeing an even greater diversity in the businesses choosing equity crowdfunding.

Why?

Because people are investing in more than shares. They’re typically fans of the product or service already. So you’re turning them into something beyond customers. Supercharged owners. Propagators. An army of brand evangelists not on the books. People to whom you can offer discounts through a campaign but will maintain loyalty when the offers end.

As they own a piece of you and want you to succeed, there’s a shared sense of ownership which stock market investors rarely feel.

Over the last 24 months across Australia and New Zealand, we’ve seen 25 crowdsourced funding campaigns raise in excess of $23 million. And I wanted to share some advice that I’ve learnt in the last seven years, as crowdfunding is not for everyone.

It’s not a silver bullet, but it can be powerful for certain types of companies.

Here are three misconceptions about what to expect if your business is considering raising funds with this approach.

1. There are people waiting to invest

Say it with me now: ‘There’s no crowd in the cloud.’

There is no crowd in the cloud just waiting for you to open up shares in your business. You need to already be getting that community buy-in through sales or other support. Equity crowdfunding platforms can help position your offering to be attractive to your crowd, but you already need to be tapped into your network of friends, family and fans. Without those three Fs, it’s unlikely you’re going to succeed.

There are no overnight success stories. There are people working hard in businesses, growing their crowd and their brand. Some are fortunate enough to see their efforts publicised, but all of them have struggled and toiled.

2. It’s all high-growth tech startups

If you’re looking to invest in the next Facebook, equity crowdfunding is probably not for you. If you think you’ll be the next Facebook, then you might want to seek VC support. Equity crowdfunding is about mobilising your customers. Not taking a punt on some high-growth forecasting.

We find it works best for businesses that already have a solid model which is working but they have a clear need for further investment.

It’s about letting your fans not only share in your success, but help grow it.

We’ve seen farming businesses, food scale-ups and even cannabis doctors — some of which have been going 20-plus years — tap into their loyal following.

3. It will go quick

Psychology can help explain our national tendency to leave things down to the wire. Parkinson’s law reasons that work will expand to fill the time available for completion. It operates along the lines of temporal motivation theory that suggests people are more willing to act the closer it comes to a deadline. And it’s the same with crowdfunding.

In Australia, we’ve seen 18-31% of minimum pledges made after 5pm on the day a campaign closes. Which is scary for those looking to raise funds. Often these campaigns last four weeks, which can result in a social media-like notification checking from some business owners. Like many other areas in business, crowdfunding draws marathon comparisons, and patience will be needed to see the best results — or a lot of preparation.

Playing the (level) field

We’ve seen equity crowdfunding democratise financing for those that might have previously struggled to get access to funds. Whether that’s down to their location (rural), gender or sector.

These are companies that people care about but that may not always have been included in the financial markets.

NOW READ: StartupSmart explainer: What’s the deal with equity crowdfunding, and should I do it?

NOW READ: Five tips for getting the most out of your equity crowdfunding campaign, from founders who have been there