The following is a guest post from Karl Dakin, co-founder and director of Colorado Capital Congress, a public benefit corporation dedicated to improving the capital ecosystem in Colorado. This article was originally seen on Pulse, and definitely got us thinking about our own approach to training entrepreneurs in Hatch’s InvestOR Ready Accelerator. Karl expanded more on this topic at ComCap16 during the panel discussion National Status: Progress & Challenges! & more. You can hear the recording if you subscribe to ComCapLearn.
Raising capital through investment crowdfunding is different from the common approach to raising capital.
Best practices in investment crowdfunding should result in a capital campaign with multiple offering packages for different crowds. Each crowd receives an offer package comprised of benefits and return on investment (ROI) that fits only that crowd. The capital campaign takes on a complex, layered depth and richness.
There is not one crowd! There are millions of crowds representing different combinations of billions of people! Each offering package is designed to fit a specific group of people with similar needs and goals!
Investment crowdfunding campaigns that treat all investors alike will fail just like common approaches to raising capital. “The myth that crowdfunding is a magic bean that instantly draws thousands of strangers’ dollars to your idea – just by publishing it – is entirely false.” https://www.fundable.com/crowdfunding-marketing
By contrast with common capital raising approaches, investment crowdfunding is a multi-colored spectrum instead of a monochromatic black and white.
Why the difference?
When using common approaches to raising capital, the only decision variable is the return on the investment. “It’s all about the money.” A single dimension. A single perspective.
It may be argued that there are all kinds of variables within an investment decision: risk, the experience of the management team, customers, the market and competition. However, all of these factors are simply used in forecasting a return on investment.
Although any organization sees itself as a unique combination of people, products and customers, from the perspective of an investor, only the outcome is measured: return on investment.
When considering a multitude of investment opportunities, it becomes difficult to tell one opportunity from another. Metaphorically, an investor finds himself or herself sitting on a large pile of coal, each lump representing a different opportunity, trying to find the ‘best’ one. “Looking for a diamond in the rough.”
The focus of an offering shifts from the need of an organization for money to the needs of the individual investor for deployment of their money as a reflection of self and in advancement of their personal goals.
Knowing that investors have a single focus on ROI, organizations develop all of their offering documents, slide decks and pitches to tell the same story: “my opportunity will result in a higher ROI”. Organizations seeking capital hope that their story will somehow resonate with the investor and gain them the capital they seek. But how can organizations differentiate themselves when their story has only one dimension? How can a story be different when it is designed to fit the needs of all investors: generating a higher return on investment?
An investment crowdfunding campaign offering that meets the needs of a specific investor has to offer value beyond a return on investment. It must meet other needs: financial, economic, social, spiritual, status and privilege. The focus of an offering shifts from the need of an organization for money to the needs of the individual investor for deployment of their money as a reflection of self and in advancement of their personal goals.
A single crowdfunding campaign will not meet the needs of all investors. It may be of great value to some investors and of little to no value to other investors. Capital campaigns can be targeted to those who benefit most. Marketing becomes the guideline for matching organizations with investors. Raising capital can become an art form instead of a gamble.
Helping crowds, comprised of individual people, attain their goals by investing capital can become fun.