Real Tips on Equity Crowdfunding from Someone Who Has Actually Done It

...and at the end of this piece: the Micro Public Company--a new approach for smaller businesses using equity crowdfunding.

When Barack Obama signed the Jobs ACT in 2012, updating securities laws in the US for the first time since 1932, I was totally ecstatic. At the time I was finishing a master's degree and I dedicated my summer internship to working for an equity crowdfunding consultancy started by the framers of the Title III of the JOBS Act (the equity crowdfunding part of the Act). Today, my fantasy of equity crowdfunding as a transformational social movement have vanished but there are a couple of real tips I can share with you about promoting your campaign that are based on my actual experience raising money through equity crowdfunding.

I have actually run equity crowdfunding campaigns.

All of what follows comes out of my personal experience actually setting up and promoting two equity crowdfunding campaigns. One of them successfully raised $23,750 and the current campaign I’m promoting has raised around $34,000. Both of the campaigns were related to Eazl, an online school that I cofounded.

What was the deal?

I think it is important that I let you know what the deal was/is so that you can understand what I was asking people to invest in. Here are some key points:

• We were/are selling regular equity in our company, not debt or any fancy equity structure 
• Our company already has around 150,000 paying customers
• Eazl is already growing organically at 55% per year 
• Our market is growing pretty quickly (online higher education)
• By most standards, our company’s valuation was/is reasonable 
• Our founding team has demonstrated success over the last four years in what we’re doing.

None of this is intended to brag—its just so that you can understand what we were asking people to invest in through our two equity crowdfunding campaigns.

What campaign promotion efforts do not work well for us?

? Approaching the General Public Does Not Work at All

I have to be honest, one of the most disappointing things from my experience in equity crowdfunding was how little success we had engaging the general public. Equity crowdfunding excited me because of the idea of communities coming together to build things that are good for the world. However, I found that they were a few major problems approaching the general public:

1. The general public doesn’t understand what “equity“ is and why it can be meaningful.
2. They tend to be skeptical about the intentions of anybody that is seeking money from them – even if it’s an investment. One of the biggest problems I had was reminding people that they’re not making a donation, they’re making an actual investment.
3. The general public tends to be very skeptical about disclosing the data required to make an actual investment. Specifically, people investing in Eazl had to disclose their address, full names, and sometimes their Social Security Numbers. They’re very worried about this but it’s a requirement of the US Securities and Exchange Commission.

So Far, We Have Had No Results in Chicago

Initially, I started community organizing around this campaign in Chicago's Southside (specifically, the Woodlawn neighborhood). I would do this by going to community meetings at organizations like those hosted by the Rebuild Foundation and the Dorchester Center for the Arts. There, I gave people handouts, met with them, and described the opportunity that they had to invest in a company that would, in our case, provide affordable education to everybody – including people in low income communities. I met with the head of Chicago outreach for the Obama Foundation, I attended a public forum hosted by the Obama Foundation and shared my ideas about equity crowdfunding, I met with the community outreach head from the University of Chicago arts and cultural center, and contacted two business launch nonprofits located on the Southside. The result of my efforts was zero.

Prior to launching Eazl’s campaign, I also...

• hosted local investor training events (like this one sponsored by Redshelf).
• started a Chicago local investor’s group through Meetup and ran three “meet and greet” sessions.
• met with the people who led Chicago’s local business advocacy group and the Small Business Development Center (and put them on our emailing list).
• met with a progressive Alderman and his economic development advisor multiple times. The Alderman was generally uninterested and the economic development advisor was super interested. He came to a number of our events.
• promoted, hosted, and ran a local investor’s Q&A for local coffee shop Ipsento during their equity crowdfunding campaign. We had about 20 attendees.
• joined mHub, a “makerspace” and developed relationships with four of the leading “makers” there as well as their leadership.

All of this effort in Chicago earned us an email list of around 100 people interested in local investing. They had seen us run multiple events, we developed a free e-book on local investing for them, and many of them had attended one of our local investing Meetups. We got zero inquiries for Eazl’s equity crowdfunding campaign from any of these people and obviously zero people became Eazl investors. 

Then, I Took Equity Crowdfunding to San Francisco and Silicon Valley

I didn’t stop in Chicago, because I felt like trying to engage the general public was really important. After all, if equity crowdfunding is going to be socially transformative, it needs to appeal to the general public. So I wondered: is there anywhere in United States where this would work? Is there a community that understands equity and understands the opportunity equity crowdfunding presents to come together to build something as a community? I moved to San Francisco temporarily to find out. 

? Approaching People in the Innovation Sector in San Francisco Didn’t Work

In the Bay Area, I attended a handful of technology and social policy events through Meetup. My sister has also lived in San Francisco for decades, so through all of these networking efforts I had extended conversations with...

• one of the people running education at Google
• a Googler on the cybersecurity team
• three successful hardware engineers in Sunnyvale
• a successful SF real estate agent
• someone on the AI team at Facebook
• the head of the SF libertarian party (I was wondering if the Libertarians I met would be interested in actually supporting—e.g. with their money—communities working for positive change outside of government)
• three of the leaders of the Independent Institute, a 501(c)3 focusing on small government and promoting the free market
• one “deep tech” consultant in San Mateo
• 4 investment analysts at Venture Capital firms in the Bay Area
• two SF media personalities

So far, spending time having extended conversations with these people who have access to resources and other people with resources has yielded zero for Eazl’s equity crowdfunding campaigns. I was pretty shocked, I have to say, that none of these people said “this sounds pretty cool… I’m in for $200.”

I was pretty shocked, I have to say, that none of these people said “this sounds pretty cool… I’m in for $200."

? Approaching Social Activists in the Bay Area Didn’t Work

Eazl is, in some way, a social entrepreneurship project. Specifically, we’re raising money now to build a higher education solution for DACA Recipients. The short version is that there are children in the US who were brought here by their parents at a young age. These people have been educated in the US and lived their whole lives here. However, when they reach 18 they can’t go to college because, as non-citizens, they can’t get student loans. So I wanted to test this next hypothesis: could I engage people who were interested in immigration reform? Basically—would social activists want to invest in Eazl if Eazl advances their beliefs and values? 

To start, I spent $200 on printing brochures that told informed them about what Eazl is, how Eazl’s Digital Degree program was inspired by a DACA recipient, and how their investment would support their beliefs and, potentially, give them ownership of a growing company. Then, I set up a landing page with an interview we did with the DACA recipient who inspired the Digital Degree, went to a rally in downtown San Francisco that was attended by around 500 people, and distributed 300 of these brochures (see the video below). I spoke with many people at the rally directly, too. 24 hours later, I checked the landing page and there wasn’t a single visit as a result of my efforts. It’s possible that I’m just a terrible brochure designer but my hunch is that something about this approach just doesn’t work.

To sum up my experience with approaching the general public, I’d say that it was a 100% failure. Rather than being emotional about the failure, I feel like it’s more helpful, for Eazl at least, to simply realize that the idea of taking a business idea to the general public and asking for buy-in is a non-starter. I primarily wanted to share this will people who have dedicated years into working to build a system that uses equity crowdfunding to transform society.

What Else Doesn't Seem to Work?

? Approaching Angel Investors Doesn't Work Very Well

Initially, I thought that angel investors would be excited about committing smaller amounts of capital to our company by way of equity crowdfunding. Specifically, whereas an angel investor typically has to write a check of $25,000 or $50,000 to get in on a startup deal, we offered them the option of investing as little as $100 in Eazl. Out of eight angel investors we approached, the one we knew best contributed $1,200 and nobody else invested in Eazl.

Why is this? I think that angel investors were unwilling to commit to Eazl’s equity crowdfunding campaign because: 

1. Usually, they want to invest in companies in the same way they always have done.
2. Angel investors usually want better terms than “regular people.” Specifically, they usually want some element of control and they want the terms of their investment to dictate that they get repaid before everybody else.

? Approaching People Interested in Equity Crowdfunding Doesn't Work

Perhaps naively, I thought that people who publicly express interest in equity crowdfunding would be interested in investing in an equity crowdfunding campaign. For example, neither the equity crowdfunding consultants I used to work with at CCA Group, nor the lawyers involved in setting up equity crowdfunding campaigns, nor people who organize equity crowdfunding / “fintech” events expressed any interest in purchasing shares in Eazl. It could be that Eazl is just not appealing to them, but if I had to, I’d bet that most of the people who promote themselves as equity crowdfunding professionals hold very few equity crowdfunded investments themselves. My wife and I only hold shares in one company that we purchased through equity crowdfunding: Tambour Original, a company started by one of my classmates.

? Approaching Friends Doesn't Work

This shocked me, honestly. I found that my friends—many of whom are are mid-level managers, lawyers, finance people, and software developers were not only uninterested in investing in Eazl, but they were somewhat turned off by the idea that I had even approached them to invest in my company. Specifically, I would say that I reached out directly to around 60 personal friends and 2 of them invested. At first, my feeling were hurt. Surprisingly, the majority of my friends didn’t look at our campaign and think to themselves, “Davis has been building this company for 5 years and it’s been growing. I’m totally in for $200.” I believe that there’s something about the concept of “investing” that makes people wary. I’d usually think to myself, “Really? Not even $100?” but I think that my friends had a hard time disambiguating between a $10,000 investment and $100 investment. 

Specifically, I would say that I reached out directly to around 60 personal friends and 2 of them invested.

? Approaching Interest Groups Doesn't Work

As I mentioned in the section above, my experiment approaching social activists that was very closely aligned with what Eazl is building was 100% unsuccessful.

? Approaching People at Industry Conventions Doesn't Work

As some politicians say, when you're looking for votes you have to "hunt where the ducks are." So, we talked to an insider in the educational technology space and she told us that the industry's biggest conference, ASU+GSV, is the biggest and most important in the world. So, our leadership team rented a place for a few days and flew out to San Diego for the conference.

I had special materials printed for the conference that had a few details about what the Eazl team was developing, our contact information, and a link to our equity crowdfunding page. Additionally, I'm an extremely outgoing person when I need to be, so I went up and spoke to around 150 people at the lobby of the conference. These were people like...

• one of the heads of education investment for the Bill and Melinda Gates Foundation
• the CEO of one of the largest educational publishing companies in the world
• the head of diversity outreach for a major Ivy League school
• multiple venture capitalists that focus exclusively on the education sector
• the head of student engagement for the California State University System (some of their campuses already partner with Eazl)

We were shocked that there was zero interest from any of the 100+ people who were in the education industry and at this education innovation conference in buying Eazl shares. We found out that most venture capital firms aren't interested in investing in any project that's raising less than $2m and that people at these conferences usually aren't representing "themselves"--they're representing large organizations and therefor they aren't there to participate in projects like our equity crowdfunding project, directly.

? Approaching Alumni Networks Doesn't Work Very Well

We were surprised that our alumni networks didn’t work very well. Eazl’s campaign got included in the alumni newsletter for my undergraduate university (Sonoma State in California) and we didn’t get a single inquiry. One of my master’s-degree classmates was interested in investing and still might do it. However, out of the ~120 classmates in my MBA class, people were generally uninterested or unable to invest. Three people said they were interested in investing but didn’t have the money to do so. It makes me think that people have a hard time fathoming of investing only $100 in a company even though that’s precisely what equity crowdfunding is and why it exists.

What Does Work: People Who Know Your Product and Rich People

??LinkedIn Works Well

I have a Linkedin network of about 5,000 people. Exporting my LinkedIn contacts and sending an email telling them, politely, about our campaign earned us around 60 inquiries. So, about 1.2% of the people in my LinkedIn network received the email, read it, and asked for more information. A few of them invested.

??Related: Approaching Our Students Works Well

This is important: the people most interested in owning Eazl are our students. After running these campaigns, it dawns on me that one of the most challenging aspects of equity crowdfunding is all of the education that’s involved in organizing people. Things like:

• What is Eazl? How successful is it?
• What will I get as an owner of Eazl?
• What will Eazl use these funds for?
• How does Eazl work?
• Who runs Eazl?

the people most interested in owning Eazl are our students

From my experience, one of the main reasons that students (Eazl’s “customers”) covert into owners is that they already know the answers to many of the above questions. They already know our product, they like it, and they trust us (thanks, Eazlers!). So far, about 60% of our investors are Eazl students.

??Approaching Rich People Works

Though it’s hard to reach rich people, they’re a really important part of the equation—especially if they’re not professional startup investors. As I mentioned above, getting the participation of angel investors is problematic because they tend to be more rigid about their approach to investing. They want to exert control over us, and they tend to want preferential terms. However, a regular rich person doesn’t usually bring these challenges to the conversation. In Eazl’s case, one wealthy person invested a 4x the second-largest investor. The lesson: one investment by a wealthy person can go a long way.

??Getting Referrals from Current Investors Works Okay

One thing that did work somewhat was asking Eazl’s investors if they know anyone else who would want some information. To do this, we offered to mail a physical package with a nice booklet, a printout of our pitch deck, and a couple of helpful one-pagers, to people who they thought would be interested. As a result of that effort, the parents of one of our favorite students invested in Eazl. We’ll do more of this in the future (see the “Moving Forward” section below).

The Takeaway: The New Micro Public Company ("MPC")

After my years of efforts in the equity crowdfunding space, I've determined that the best use of the technology is to run a "micro public company."

Micro Public Company: a US corporate entity that is not large enough to be traded on a public stock exchange but that sells it's equity on a rolling basis.

In order to run a Micro Public Company, a US corporation needs to:

1. Qualify to issue shares through the Regulation CF SEC exemption (this is "equity crowdfunding")
2. Engage it's customers and/or community in investor relations-style communications on a rolling basis
3. Work with a platform (like TruCrowd) that will enable the issuer (the MPC) to sell its equity for a long window of time
4. Develop robust shareholder benefits (Eazl's are here), which likely mean that the MPC will need to adjust its corporate bylaws or issue an additional class of stock. Shareholder benefits will act more like a membership than traditional shareholder benefits (e.g. dividends).
5. Be prepared to communicate its strategy and/or select datapoints publicly. Here is Eazl's recent investor video update, for example:

I don't have all the answers, but I have actually done this stuff and I wanted to share my learning with the many excellent people I've encountered in my equity crowdfunding journey. Hit me up on LinkedIn or via davis at eazl.co if you have any questions!