Crowdfunding may be all the buzz, but it’s yet to prove itself as the cure-all for small business finance. Moreover, while the biggest chatter in the industry revolves around the impending release of Title III crowdfunding (investing in deals for non-accredited investors), there still remains ample opportunity for targeting accredited investors. They do, afterall, total roughly 8.7 million in the United States alone. Unfortunately those that intend on investing in accredited-only crowdfunding deals are expected to hit at less than 200,000 nationally. This means there still remains ample opportunities to woo potential investors into crowdfunded startups even well before the law is fully implemented, but challenges still remain.
Accredited Investors are Still the Golden Goose of Investing
While we still remain in investing limbo between Title II and Title III, opportunities for general solicitation and onboarding of accredited investors for the right deal are huge. Crowdfunding strictly with accredited investors may be the best filter and test for those hoping to hit up the masses later. For one, they’re more sophisticated, especially those who’re accustomed to investing as angels. Second, they have deeper pockets, so founders will be beholden to far fewer investors, which can be both a blessing and a curse. Third, immediate liquidity on the part of investors isn’t as necessary. Accredited folks can buy and hold for longer periods without feeling the need to divest.
Having fewer, more sophisticated investors on your side is the ideal scenario. They generally hold the connections and have the overall prowess to partner with you with not just capital, but intellectual capital as well.
Increasing Overall Investor Participation
Over the last several months, I’ve become well-acquainted with the CEOs and founders of some of the most well-known equity crowdfunding platforms on the market. In all my conversations, I’ve typically asked the question, “on average, how many investors participate in each deal?” The answer has been, without fail, less than 10. That just goes to illustrate how few angels are putting up the money on the deals that are actually being funded.
The catch 22 of crowdfunding in general is that many investors means many taskmasters and dealing with them can be a headache. Ask any CEO of a publicly-traded company. In the case of investors, more is not always better, but getting more attention is always better.
Marketing to Accredited Investors
Apart from buying accredited investor data, which just about anyone can do for <$0.50, targeting the right group is key. Investors like to play in specific markets where they either have expertise or where they’re comfortable. That means if you’re keen on real estate crowdfunding, accredited real estate investors are your niche. Startups and tech require a completely different investor profile. Knowing how and where to hit these folks can be difficult.
Thanks to the ban on general solicitation, the opportunity to market to large groups of people is certainly appealing, but it could mean that posting for interest in your deal on your Twitter feed is not going to be picked up or seen by the average accredited investor. Many of them have their own businesses to run and they’re not trolling Twitter to find investment opportunities. The best bet is personal networking and asking for referrals within your space. Linkedin can also be a helpful tool to find investors, but unlike Twitter, it requires a direct and firm outreach, not a passive “post.”
Instead, increasing participation among accredited investors is still done in a very traditional approach. It involves connecting with people in a one-on-one fashion. It’s a bit more old-school in this way. Phone calls first, emails and, most importantly, direct meetings will serve well in the promotion of the business. Then comes the verification of accreditation prior to collecting the checks.
The eventual ubiquitous proliferation of equity crowdfunding as an investing asset class for the masses is going to increase the amount of money flowing into small business. Learning the ropes with the tighter-focused, more sophisticated group of accredited investors will only help business owners in their eventual foray into the broader market. If entrepreneurs can pitch and sell the accredited players on investing in an idea, getting the rest of the herd to follow will be much easier.