Equity crowdfunding is an exciting new way to raise the capital you need via online portals instead of an endless, exhausting series of one-on-one pitches with venture capital firms.
Unfortunately, there are a lot of myths in this emerging industry that keep entrepreneurs from seriously considering the opportunity. These misconceptions kill good business ideas before they ever have the chance to take off due to limited funds.
So let’s cut through the most common and harmful misconceptions to understand why you should consider equity crowdfunding. Then, we’ll discuss how to execute the most successful crowdfunding campaign possible.
Myth 1. “Millions of People Surf the Web, so Raising Money Should Be a breeze”
With the right partners helping you, equity crowdfunding can be straightforward. But that doesn’t mean the process is easy.
First, there are legal requirements limiting who can invest in equity crowdfunding opportunities – everything ranging from the sophistication level and income of potential investors.
There’s also more transparency online than ever before. It’s easy for potential investors to investigate your background, offer, team, and the market at large. Many get cold feet during this screening process.
Myth 2. “There Is a High Risk of Fraud”
There are plenty of equity crowdfunding critics, as the industry is still in its infancy. Many are concerned with the potential for fraud. However, there hasn’t been a single reported case of fraud to this point.
There are legal requirements in place to keep fraudsters in check. The JOBS Act, passed in 2012, allows entrepreneurs to access this type of funding. It took the SEC a few years to adopt rules to govern the law, but it finally laid out some concrete standards to keep investors and entrepreneurs in check.
Myth 3. “Competitors Will Steal All My Info”
It’s understandable if you are hesitant to reveal information via an online portal…
But you are in complete control of the level of information you choose to disclose. Working with the right partner (on the right portal) will ensure your information is only shared with investors who have gone through a stringent screening and vetting process. You’ll comply with legal requirements without providing superfluous information.
Myth 4. “I’ll Be Stuck Managing Thousands of Shareholders and Forced to IPO”
Thanks to digital tools, it’s easier to manage and communicate with hundreds (or even thousands) of investors in a time-efficient manner.
You can actually bundle up all of your equity shareholders into a single vehicle. There’s no need to worry about overloading yourself with investors or discouraging future, potentially bigger investors.
Myth 5. “The Market Will Be Overloaded with NVA Capital, Creating a Bubble”
This myth overlooks the fact that investors, just like entrepreneurs, are selected carefully on quality crowdfunding portals.
The best portals are just as selective with the investors to whom they offer access as the entrepreneurs and crowd-funded offers themselves. These lead investors will also inform the market, which keeps prices from rising too high as they are careful about every opportunity they invest in.
Myth 6. “Equity Crowdfunding Is a Last Resort and Will Make Me Look Desperate”
Not at all.
More often than not, companies thinking about equity crowdfunding are also considering different funding sources. Many have already raised money from angel investors or early-stage VC firms. Even if a company seeks crowdfunding now, nothing stops them from raising venture capital in the future.
SCIO, which makes a pocket molecular sensor, raised $3 million on Kickstarter, did an investment round via equity, and got the backing of a traditional VC firm, Kholsa Ventures.
This makes sense, as equity crowdfunding is the perfect way to validate a product’s viability before seeking larger investment.