The Power of the Community Round

Equity crowdfunding has many benefits for issuers, and one of the biggest is allowing issuers to tap into the power of community.?

Issuers with a strong community can tap into millions of dollars of growth capital in a short period of time, for a very low cost. In our last issue looking at cost of capital vs. dilution, we outlined one key benefit of equity crowdfunding, but the power of the Community Round is single-handedly the biggest opportunity for issuers.?

Turning Investors Into Customers?

If you have a vision that inspires, but you don’t have enough capital to get there, building a community that believes in this vision can be powerful.

One recent example is Aptera Motors*. They are building the future of electric vehicles. Their design for a solar-powered electric vehicle is expected to require no charging for most daily use, allowing owners to operate truly off the grid. And over the past years, they have been able to raise $60M from over 15,000 investors across multiple Reg A+ offerings. They are now on the verge of realizing their vision and launching their first vehicles, and they already have a captive and engaged customer base.?

Companies also have an opportunity to offer early investors product or mission-related perks for different investment levels.?

With product perks, these items can become exclusive collectibles that are truly one-of-a-kind. This is similar in concept to the way Tesla sold a limited number of early models of its electric vehicles to help fund its growth. These models are effectively collectible items that true brand evangelists covet.?

From a mission perspective, by offering investors the perk of participating in roundtables, launch events, and other similar opportunities, you can build a deeper connection with these individuals that will last long into the future.?

If the above is executed correctly by an issuer, the cost to generate investment from individual investors can also serve to acquire new, loyal customers, helping the company grow revenues faster, at a lower cost.?

And Customers Into Evangelists?

If you have already built a well-known and trusted brand with thousands of loyal customers, you have a unique opportunity to convert these individuals into investors.?

This is especially true for subscription-based businesses. Take Athletic Greens for example–they bootstrapped their way to becoming the de facto leader in greens powder supplements, and only just raised their first round ($115M). They missed out on an opportunity to turn their subscribers (customers) into investors who would purchase their products long into the future.?

Community Rounds also give issuers a competitive advantage by creating an added incentive for their users or consumers through an equity-based upside.?

Imagine if Uber had given its drivers and users the opportunity to become investors early on. While it’s impossible to know the ultimate impact, it would certainly create incentives for both riders and drivers to use its services over a comparable competitor like Lyft. This would then create a positive feedback loop of benefits, helping Uber outperform. Unfortunately, they did not give their community this opportunity.?

This brings us to another important point. For successful businesses, there are often thousands of people who brought the company to that stage, and they deserve to benefit as well. Too often, early investing is limited to private equity or venture capital, and the people who were truly responsible for building the business–the community–never have the opportunity to benefit. This is the sad reality all too often.?

Marketing Magic?

The marketing costs for equity crowdfunding are often 80-90% of the total offering cost. With a strong customer base, your “top of funnel” is not only filled, but it takes less time and effort to build trust and help a potential investor understand the story.?

If you already have a base of customers, you are 80-90% of the way to a successful crowdfunding campaign.?

For true community-focused companies, equity crowdfunding is not only a powerful tool, but the right thing to do. These early product or service users deserve an opportunity to benefit through equity upside.?

But beware the potential downfall of marketplace platforms. In the first edition of Capital Raising Online, we outlined how these platforms can exploit investor data - if you are not careful you can send your customers into a new community that will market other companies and brands to them without care. This is where white-label platforms like Issuance thrive.?

The Reg D Friends & Family?

If you’re an established business executive with a track record of success, often you will have a large network that would love to support your next project. This is where a Reg D 506(c) equity crowdfunding (from accredited investors only) could be perfect to help you get the start-up capital you need.?

These raises are low-cost and can be set up and launched in a matter of a week. The end result is a link to an investor page that you can text, email, or post to your community.?

With today’s online capital-raising platforms, it is easy for an accredited investor to create an account, sign a subscription agreement, and fund an investment. No more concerns about tracking wires or lost subscription agreements. The platforms create a seamless process that makes even $5-10K investments worthwhile for both the investor and the company.?

What About Followers?

Along a similar line, sometimes the opportunity comes from an individual with a large follower base or existing brand (think Lebron James or Kim Kardashian). As many VCs will say, at an early stage, it’s more about the team than it is the idea.?

Individuals with a large following and a great idea can tap into the power of their own personal community through any of the crowdfunding exemptions.?

With millions of followers, a new company doesn’t need to get large individual investments to raise the growth capital they need. Sometimes there are even active investor groups that follow an old or well-known brand. These groups can be valuable pockets of capital that are worth tapping.?

Other Benefits

For some established companies that may have bootstrapped their way to a successful stage, an equity crowdfunding campaign can be valuable in advance of a go-public event.?

For most exchanges, there is a minimum threshold of individual investors that are needed to list (ex. 300 individual shareholders to IPO on NASDAQ). There can also be a liquidity boost that comes from having many smaller investors. These investors can trade the stock more frequently and can help support healthy liquidity for the company after a go-public event.?

Issuance’s Community Round

In line with all the benefits we outlined above, Issuance has made the decision to launch its own Reg D 506(c) offering to provide an opportunity for our community to benefit from our growth. Investors have traditionally invested with Issuance in some of the industry’s largest raises, and now they can invest IN Issuance.?

See our landing page for more details.

Capital Raising Online:?Equity Crowdfunding (regulation financings) are the new frontier of capital raising and they are digital-first and democratizing early-stage investing for the masses. Every month we discuss the ever-changing regulation financing industry as it continues to expand. From important developments to critical considerations and insights, we provide an experienced perspective on the industry.?

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*Aptera Motors 17b Disclosure