Last updated on August 10, 2021, by Hong Zhuang. Reading Time: 5 min.
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Are you sure that crowdfunding is your best startup financing option?
If you are not 100 percent sure, you can read this short blog to confirm your decision.
Why is it crucial for you to choose a right crowdfunding platform?
In traditional fundraisings such as angel or VC, you can try another investor if one investor refuses you. Unfortunately, you only get ONE shot in crowdfunding because you will not be able to crowdfund again right after you failed on one platform.
How do you choose the right one confidently?
The entire purpose of this blog is to guide you through the selection process and empower you to pick your best match.
Keep reading to learn more, or use the chapter links below to jump ahead.
Reward Crowdfunding Platform Selection
What are the nine criteria that matter?
As a first-timer, you first identify the top platforms in your country and then browse through each platform to review the first four criteria.
- Product requirements
- most crowdfunding platforms screen products forbid certain products. Thus, it is necessary to check the eligibility of your product
- you should avoid selling “minimum viable product” (MVP) because backers only give money to mind-blowing products
- Product featured: check the first three product campaign pages to see any product from your industry is listed.
- Cash-outs policies; some platforms don’t let you to:
- keep the money you raise unless you meet your funding goal
- cash your money until the end of your campaign
- Pledge timeline; some platforms collect pledges until the end of a campaign, which can cause pledge cancelation up to 6%
Now you scratched the surface. In the Next step, you will talk to each platform team member to find out three additional criteria to help you discern platform differences:
- What type of business does the platform serve? Some platforms focus on small businesses, while others are for startups.
- What kind of products is a good fit? This answer helps you determine if your product will appeal to the platform backers.
- Platform fee structure: you itemize all details.
- Available services:
- How the platform can help your campaign; a turnkey service or DIY.
- 24/7 or 9-5 customer service
- availability of the affiliate program that can help you reach out to more backers
- in house marketing service
Bonus:
- You do not have to be a legal entity for raising reward crowdfunding.
- You should patent your product before crowdfunding to safeguard your invention.
Equity Crowdfunding Platform Selection
Unlike reward crowdfunding, equity crowdfunding comes with strings attached: government regulations. Thus, you have to be incorporated as a legal entity in the same country as the equity crowdfunding platform to participate in crowdfunding.
There are many equity crowdfunding platforms, and most of them are even soundalike.
How do you choose the one that is right for your startup?
You can apply our two levels of research to collect information, unqualified filter platforms, and then make the final decision.
Leve one research
The research takes a bird’s-eye view of your equity crowdfunding platforms.
You obtain a list of equity crowdfunding platforms in your country through a search engine and then browse each platform website to collect the following information:
- Platform company
First, you check its launch date since it takes time to build a proven track record and avoid newbies.
Secondly, you only select a platform that a national supervisory, regulatory body has authorized.
Last, a platform team should have experience with startup fundraising, and team members’ backgrounds support what the platform offers.
2. Platform’s past performance
You look for the following three historical data:
a) total money raised since launch; This data reveals if the platform has a strong network of investors and startups.
b) The average funding amount; You should eschew the one with this number is much less than your funding goal.
3.Companies featured on the platform
By browsing through the companies, you can find their funding goals, products, the lifecycle stage of the companies, industries. Then you can sense whether the platform is suitable for your product/service.
Now you should have a list of platforms you want to divide into the details of the platforms.
The second level of your research
You will meet the team members of the platforms that you want to learn more about.
What information do you need to gather?
1.Platform investors
How many investors are regularly investing?
How much money does an average investor invest?
What kinds of startups are its investors the most interested in?
The above answers can help you:
- calculate how many investors you need.
- see if the platform investor base is large enough to support your funding goal.
- learn the likelihood of your product’s attractiveness to the investors.
2. Campaign
a)How does the platform select startups?
Each crowdfunding platform has its process for selecting startups. Some only select the top 1% to 3% of startups applied, and others only accept startups that can raise the baseline money from their networks. The latter option allows you to control your fundraising.
b) What is the maximum money you can raise?
c) how many percent of campaigns have reached their funding goals?
d)What types of startups are a good fit?
The above questions can help you assess
- whether a platform is suitable for your startup.
- the chance of your fundraising success with the platform.
3. Platform support
It would be best to learn the fundraising process, how a platform supports you at each step, and the common challenges campaigns face.
A platform that offers a turnkey solution can help you ease many fundraising headaches, and prompt customer service can release your potential headaches quickly.
One must-have service for you is Custodian because it will put all securities sold on the platform under one entity on your cap table (your next round investors will care about how many entities are on your cap table).
4. Platform fee: its structure, due, and hidden costs
You need to itemize all costs to compare how each platform will charge you.
Conclusion
Once you collect enough information, you should ask yourself the following two questions before making the final decision:
- which platform best fits your funding goal and needs?
- which platform team member makes you confident that they will help you effectively get your fundraising job done.
Our mission is to match more ambitious tech startup founders and women entrepreneurs to their ideal investors. We hope this blog has helped you select the right crowdfunding platform. If you have any questions, you could reach out to us via email: info@zettasher.com.