Crowdfund Investing For Dummies
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Raising money is hard work. Your success depends on your network and crowdfunding strategy. You simply must build relationships and connections with contacts who will be interested in investing in your company.

Building a robust, deep, and wide network must start before your campaign on a crowdfund investing platform launches. Why? Your campaign will be over in fewer than 90 days. RocketHub statistics show that you must get 30 percent of your dollars from your social network before strangers will take your offer seriously and invest.

Worse, people lose interest when they see that others haven’t invested. Your deal becomes old news, or what investors call “shopped.” If you’ve shopped your deal too long, people believe there must be a good reason others haven’t already invested.

When you reach that magic 30 percent level of initial investment, strangers will consider investing. Strangers want to see that other people have vetted your offer and invested. Your initial funding provides crucial credibility (otherwise known as social proof) for those who don’t personally know you or your company’s team.

Interestingly, Kickstarter campaign statistics show an opposite trend: Very few friends and family invest, and it’s up to you to develop a strong network and a robust PR strategy that will attract backers. Who helps out the most? Acquaintances and all those connected to them — strangers to you.

Statistics from the Kickstarter website showed total pledges of $100 million in October 2011 with the typical ratio of outside referrals to the website community 8 to 1.

Matt Haughey has backed 84 projects on Kickstarter. How does he find them? Twitter. He knows that the more followers you have, the better your ability to cash in on good will.

Brian Probst founder of CruxCase raised more than $248,000 from his Kickstarter campaign. His Utah-based company develops, designs, and manufactures keyboard cases for the iPad. Half of his backing came from outside strangers. (His PR firm, Max Borges Agency, pushed the story out to tech bloggers on sites like Yahoo! News, Mashable, and Wired.) The other half came from backers in the Kickstarter community.

Brian lists the following five factors that helped make his campaign a success:

  • Culture: It’s a product that appeals to innovators and early adopters.

  • Design: The product features a highly designed aesthetic that mimics the design and finish of Apple products.

  • First mover: The product was one of the first of its kind available.

  • Transparency: Brian and his team were completely transparent about their flaws, challenges, and personalities, and they maintained constant communication with their backers. Because of this, the backers felt as though they truly knew Brian’s team personally, so they trusted them.

  • Tell the story: More than just offering your backers a product, you’re also telling them a story. The backers are a huge part of this story. Brian and his team made their story compelling and made the backers want to join them and be a part of their success story.

About This Article

This article is from the book:

About the book authors:

Sherwood Neiss, Jason W. Best, and Zak Cassady-Dorion are the founders of Startup Exemption (developers of the crowdfund investing framework used in the 2012 JOBS Act). They deeply understand the process, rules, disclosures, and risks of capital formation from both the entrepreneur's and the investor's points of view.

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