Crowdfund Investing For Dummies
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By seeking crowdfunding for a project or new business, you’re embarking on a process that may last for many years. Over those years, you’ll be building and maintaining relationships not only with your customers but also with your investors. Your customers may expect nothing more than a good product or service in exchange for their money, but investors are different.

Anyone who gives you money upfront to support your vision is bound to have expectations about what will come from that investment. You must carefully manage their expectations from the first minute you contact them about the investment opportunity.

Consider an example: You want to expand your greenhouse and landscaping business, and you’re seeking $20,000 to do so. You have a solid business that has grown 7 percent to 8 percent each year for the last three years, has earned 15 percent profits each year, and boasts happy, repeat customers.

When seeking investors, you must set their expectations to the realities of the landscaping business and prepare them for the possible upside and downside of your industry. You must accurately inform them of what you think the most likely outcome will be, based on data, facts, and your best judgments and planning.

  • State a clear vision: Managing investor expectations starts with stating a clear vision for your business.

    Entrepreneurs often make the mistake of trying to have their businesses be the answer for everything. What can happen is that an entrepreneur tries to have her business do everything, but it ends up not doing anything well. Having a clear and realistic vision is the first step in avoiding this pitfall.

    Be very succinct in your vision, and communicate it to your investors and your team. But don’t overestimate what you’re going to achieve. The best approach is to under-promise and over-deliver.

  • Aim for honesty and financial transparency: Making wild claims or selling people your best-case scenario is a recipe for disaster. People deal with expectations in interesting ways. If they expect to make 5 percent per year on an investment and they make 6 percent, they’re usually thrilled. If you set the expectation that they’ll make 10 percent and they actually make 8 percent, they may think investing with you was a mistake.

    • Share your personal background and experience: Any business planning book you read or class you take will tell you that the people leading the company are more important than the company itself. No matter how great your idea may be, investors need to feel confident in the leadership of the company before they invest.

    • Tout your creativity, passion, and motivation: You don’t need to be a seasoned entrepreneur who has created multiple successful companies in order for people to be confident in investing in you. People want to see the creativity, passion, and motivation that you bring to this venture. They want to feel certain that you’re 100 percent behind your business and believe in its success.

    • Know your limits: Investors want to know your passion, but they also want to know that you’re realistic. Say you want to raise $20,000 for your landscaping business that has $100,000 in yearly revenues. If you claim that this extra $20,000 will allow you to grow the business to $500,000 in yearly revenues, investors will know that plan is flawed.

    • Post financial information: The amount of money you’re raising will determine the amount of financial information you need to disclose to potential investors.

  • Prepare for ongoing communication: After you launch your crowdfund investing campaign, be prepared for ongoing communication with your investors and/or lenders. When you launch your campaign to raise capital, you won’t simply make a one-time marketing pitch and then wait for the money to roll in.

    Potential investors are going to have questions and expect answers in a timely fashion. Anyone truly interested in you and your idea will monitor your campaign page to see how well you communicate before deciding whether to commit dollars to your efforts.

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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