Profit Minded

What to do while waiting for equity crowdfunding to come

This time last year, the business press was abuzz with equity-based crowdfunding fanfare. Yahoo! Small Business was no exception. According to the JOBS Act, the SEC was to have established rules by January of this year to make it possible for small businesses and startups to use social media and friends-and-family networks to raise investment or debt-based capital through "crowdfunding."

Equity based-crowdfunding platforms sprouted up, and members of the sector aligned within new industry-standards organizations, ready to serve cash-strapped small businesses as soon as Washington gave the go-ahead. But the rules have yet to come.

Elizabeth Smith Kulik, founder and CEO of the crowdfunding platform ProHatch, says she’s not surprised. “A lot of the delay is just the regulatory process, review periods, and comment periods.” Sure, Congress gave the SEC 270 days for rulemaking. “But that was if everything was running on all cylinders. We’ve had an election year and a new SEC chair appointed since the JOBS Act was passed,” Kulik notes. All things considered, JOBS Act rulemaking is not the highest priority in DC these days.

When Kulik began building ProHatch, which is set to launch May 15, she had the foresight to develop a hybrid model. Companies and other organizations can use her platform for donation-based as well as equity-based crowdfunding, so her own company startup won’t go into a holding pattern waiting for the SEC, and her users can start out with a donation-and-rewards based campaign and transition into the capital markets once it’s permissible, she says.

What else can entrepreneurs who do while waiting for equity crowdfunding to get here? Kulik says there are several ways to use this time wisely.

1. Tighten your plan. Equity-based crowdfunding investors are apt to be more rigorous than those Kickstarter donors when it comes to analyzing your strategy. Kulik says, Develop a business plan for your project and determine a reasonable timeline for your raise. Articulate a clear vision, business model, financial projections, proposed use of funds, and an execution plan for the funded project.” She says you want to be able to show funders your potential for success and how you are solving a problem or need in the market.

2. Hone your story. A direct, engaging story is how you will get accepted to a platform and win over “the crowd.” Kulik says funders like to “feel a direct connection to a great idea, a game changer, a superior management team, or something personal, like giving back.” She recommends sharing your personal passion and the social or business value of funding your project.

3. Produce your video. Video pitches are so integral to online crowdfunding campaigns that there are even rankings of the best ones. Kulik says, “No need for professional quality videos. Amateur, organic, production is exciting and interesting when it is well done.” But, when bringing your compelling story to life, be sure to: introduce yourself and lay out “core points, differentiators, problems solved and what needs to be done to achieve your goals,” she says. Oh, and keep it to under 2 minutes or you’ll loose viewers, and possibly funders.

4. Ready your social broadcasting campaign. It’s not only out of desperation that entrepreneurs often turn first to friends and family for  funding. Kulik says, “If your project is funded early by family, friends, and friends of friends, then the greater audience of strangers will more likely be attracted to it.” Crowdfunding on social media makes that process easier, so make sure your network is wide and solid. As your funding gains momentum, she adds, you’ll want to “target bloggers and influencers who have audiences of their own who may also further broadcast your project, potentially leading to more funders.”

5. Plan your communications strategy. Once your campaign has begun, Kulik says, “a regular and timely program of updates will engage your audience, convert viewers to funders, and funders to stakeholders who promote and fund further.” Before you start crowdfunding, think about what you’ll convey—such as progress reports on successes and challenges—in video, narrative, and pictures to keep the conversation going. And take the time to build social and business network profiles for yourself, your team, and your company. “Integrate all of your available online media and content to your project page to increase credibility for your project and broaden the audience of people who will view, fund and re-broadcast your project,” Kulik says.

For more advice on crowdfunding, check out other resources offered on the ProHatch website.

For previous Yahoo! Small Business coverage of crowdfunding, see:

Congress eyes crowdfunding to help business owners

Waiting for the equity based crowdfunding story to start

Crowdfunding a promising option for businesses seeking loans and investors, report indicates

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