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Why Your Startup Should Strongly Consider Equity Crowdfunding

Nathan Resnick
Nathan Resnick
at Sourcify

The benefits of turning to your audience

With businesses shifting further into the online space, the connection between businesses and consumers has never been closer. According to a study by Pew Research, nearly 80 percent of Americans shop online.

Just as the online purchasing process has facilitated an easier B2C connection, many startups now are looking to the online space for investment opportunities. Through a process called equity crowdfunding, startups are finding new, engaging and effective ways to find funding without having to run around to banks and investment firms trying to pitch their way to a dollar.

Equity crowdfunding is a practice that came about as recently as 2009. Also referred to as investment crowdfunding or crowdinvesting, equity crowdfunding is an unlisted business opening up early-stage investing opportunities to, well, the crowd.

This is often done through crowdfunding sites, such as Indiegogo or Crowdfunder. Essentially, equity crowdfunding opens up the investing process. Where investment opportunities used to be limited to big firms and venture capitalists, equity crowdfunding lets the actual consumers of the product get in on the action.

Now, as the owner of a startup, you may be wondering what value there is in inviting consumers to invest in your business, when far greater sums of money can be found in looking to venture capitalists, banks and other high-powered sources. Equity crowdfunding can, however, benefit your business in ways that the traditional funding pursuit cannot.

These are a few of the key positives of equity crowdfunding, and why your startup should seriously consider it.

You'll find loyal customers

What will make customers feel more invested in your business than actually investing in your business? Take, for example, hotel booking site Baarb, which has employed equity crowdfunding not only to fund its business, but to build up a loyal customer base.

Additionally, once Baarb opened itself up to the equity crowdfunding process, it was able to quickly gauge its market. The company knew who was interested and could tailor the marketing experience to them. So not only did it create a customer base that felt a personal connection to its success, but it gained an insightful picture as to who its target audience was.

You won't leave empty-handed

While an equity crowdfunding effort may not bring in millions of dollars in one fell swoop, it won't leave you dry. As long as your business has a strong initial customer base and enough appeal to draw in new consumers, you shouldn't have much of a problem bringing in at least some funding.

Most companies that turn to equity crowdfunding are on the younger side, meaning that they would be likely to run into difficulties should they try to obtain a bank loan. With equity crowdfunding, all you need is a decent social media presence and a great product, and you're good to go!

Amidst all the talk of unicorns, Shark Tank and Silicon Valley startups, it can be easy to assume that, with just the right pitch, your startup can be the next recipient of a windfall investment. The truth is that less than 1 percent of startups receive this type of funding. By turning to equity crowdfunding, you'll gain secure funding that can give your business that initial boost.

You remain in control

This is perhaps the biggest benefit of equity crowdfunding – you're beholden to nobody. That's not to say that you shouldn't reward your investors; indeed, without making some promise of eventual reward for investing, you'll be unlikely to gain the hard-earned dollars of even your most loyal customer.

For example, you can use your crowdfunding campaign to promise deals, insider info and the chance to get early product drops, as did activity tracker maker Misfit Shine. This gives your investors more incentive to act quickly and, if you follow Misfit's template of a tiered investment and rewards platform, to contribute a greater sum than they would have otherwise.

It's never going to be easy to fund your startup. No matter what investment route you take, there will always be some risk involved. With equity crowdfunding, though, you remain in control of your investments while building up a loyal customer base and carving out a clear vision of your target audience.

Image Credit: LeoWolfert/Shutterstock
Nathan Resnick
Nathan Resnick
business.com Member
See Nathan Resnick's Profile
Nathan Resnick is a serial entrepreneur who currently serves as CEO of Sourcify, a marketplace of the world's top manufacturers. Having brought dozens of products to life, he knows the ins and outs of how to turn ideas into realities.