Published on Oct 28, 2020 in Crowdfunding News
Equity crowdfunding is expected to overtake venture capital as the largest source of startup funding by 2020 ($36 billion). For founders, this shift is monumental—translating to more diverse, accessible capital. But it also means that companies are gaining unprecedented numbers of shareholders, and many founders worry about the ramifications of dilution on this scale. Here’s what it actually means to have thousands (or even tens of thousands!) of shareholders:
The more investors you have, the more people you have vested in your company’s success. Yes, your cap table will look large. But your investors will be your top referrers. They’ll send business your way, introduce you to key networking opportunities, and provide you with all the UGC you could dream of.
For many entrepreneurs, the day comes when they need to affect change in order to scale. This could be as small as coming up against local or state legislature, or as big as lobbying for federal change. Should this happen, you’ll be able to mobilize your shareholders to amplify your message.
In order to raise money via equity crowdfunding, you have to publicly share your financials from the previous two fiscal years. Essentially, you’re putting all your cards on the table. Should you seek to raise additional funding via venture capital in the future, some VCs may balk at this transparency. However, as ECF continues to accelerate in prevalence, this practice of transparency is becoming increasingly accepted and anticipated by serial investors.
While VCs may raise an eyebrow at high numbers of shareholders, a successful crowdfunding campaign can also provide the proof of concept you need to get the attention of VCs in the first place. In general, approximately 98-99% of entrepreneurs are rejected by VCs—but a significant crowdfunding raise can shift the odds in your favor by demonstrating proof of traction and a viable concept.
Fundraising is a never-ending journey, and you’ll likely have to explain to future investors why you made the decision to crowdfund. Be prepared to be transparent and demonstrate the positive momentum achieved through your campaign, and you should have very little to worry about!
Interested in launching an equity crowdfunding campaign? Take the first steps today with strategic guidance from the Arora Project—$75M raised and counting.