DIY Crowdfunding – Equity Crowdfunding on Your Website, not a Crowdfunding Platform
DIY crowdfunding is a seemingly simple term but a very real, very feasible option when it comes to equity crowdfunding. Crowdfund Buzz warmly welcomes Aaron Shafton of Dealmaker as our guest to break it all down….
When Raising Retail, Issuers Deserve Better, Self-Hosted Offerings
Aaron Shafton, DealMaker
Welcome, Retail Capital
In April of 2012, President Obama signed the JOBS Act into law, supercharging the existing Regulation A exemption into what is now commonly referred to as “Reg A+” and giving birth to what would eventually become “Reg CF”.
From the steps of the Rose Garden, the President reaffirmed that Americans were a nation of “do-ers” – the American spirit is one of unbridled tenacity and inspiration, and entrepreneurship and the support of small businesses rests at the heart of the nation’s values. By working with the SEC to modernize “80 year old” securities regulations, the Act provided new access for retail investors to fund ideas they believed in, and unlocked billions of dollars in potential capital for issuers across the country who could now take their businesses “to the crowd” for financing.
10 years later, issuers have indeed raised those billions – the growth of Reg A+, Reg CF, and Reg D 506(c) spans industry and geography, spurred by the same “retail revolution” fueling Gamestop investors, cryptocurrency, NFTs, and more. Every day, more founders are learning about the legitimacy and power of a retail capital raise and, increasingly, sophisticated issuers are turning to the crowd not as a last resort or alternative, but out of preference. The industry born back in 2012 is evolving.
(Editorial note – we here at Crowdfund Buzz see DIY crowdfunding as an evolutionary step forward.)
Unfortunately, despite the increasing success of the category, many of the tools available to issuers trying to raise from the crowd have failed to keep up with the pace of change. For every founder who is inspired by the potential of raising money from the masses, there is another whose first and only exposure to equity crowdfunding is a cluttered marketplace; a founder who looks at a toolkit that has remained unchanged since 2017 and promptly decides that equity crowdfunding “isn’t for them”.
Marketplaces and “Self-Hosted” Raises
Many of the first Reg A+ and Reg CF offerings were transacted on “marketplaces” – online portals that on boarded investors to create profiles/accounts, and showcased multiple offerings at once to each user. This mechanism continues to be, by count of offerings, the most common way for issuers to raise money from retail investors.
For some issuers, this approach is strategically sound. Smaller organizations with limited marketing capacity or budget or those who lack existing community/traction can certainly benefit from “listing” on an existing marketplace.
But for so many, this mechanism is not the right fit. Where smaller, less sophisticated issuers benefit from proximity to others, larger issuers with more complex marketing capabilities or existing brand infrastructure are limited by an experience they don’t own themselves. A more advanced issuer needs to leverage a self-hosted, white-labelled platform – an investment experience embedded directly into their own website that allows for more flexibility in optimizing digital marketing initiatives, setting and controlling fees, and ultimately providing a branded experience to their investor base. They need the same level of control that they would for an online store.
(Editorial note – the inherent advantages of DIY crowdfunding are succinctly summarized in the paragraph above,)
The marketplace vs platform “debate” is not unique to retail crowdfunding. In the world of e-commerce, much has been written about the role that Amazon plays in the toolkit of a growing business vs that of an online store powered by Shopify (Ben Thompson’s Stratechery offers a particularly great walkthrough of the similarities and differences here). But what is unique is the disproportionate rate at which the category’s new entrants flock to the “marketplace” model, opting to list their offering in a virtual shopping mall and accept burdensome fees and processes that do not benefit them.
As both regulation and technology continues to evolve, the white-labelled, “self-hosted” raise continues to offer more and more benefits for issuers, especially as the number of more sophisticated companies entering the space increases. If there is a gap, it is undoubtedly in the education and proliferation of self-hosted solutions, the benefits of which can be immense.
Why Raise Self-Hosted? Why Consider DIY Crowdfunding?
Not every issuer will benefit from a self-hosted raise. At DealMaker, our experience has been that if just one of the following characteristics applies to a business, it likely indicates a stand-alone store is a better fit than the traditional “marketplace” approach.
- You have an exciting, relatable, jaw-dropping product
Winning investors’ hearts and minds is a process that is both emotional and quantitative. Companies whose products resonate with everyday people and clearly communicate their distinction and value will stand out and lead a more successful offering. Remember, you’re no longer standing out from the rest of the “marketplace”, you’re up against the rest of the internet. The opportunity is larger, but the bar for success is accordingly higher.
- You have a strong existing brand, founder network, or customer base.
Issuers with existing followings or rabid fan bases are the perfect candidates for Reg A+ and/or Reg CF offerings, as their community represents untapped capital and the ability to reinforce their most loyal followers with “superfan” status as investors. If you’re bringing the following yourself, what good is a marketplace? Issuers can save expensive marketplace brokerage commissions for “distribution” (that they’re actually doing themselves), and minimize the impact that other brands will have on their investors’ conversion funnel. For more sophisticated issuers, the greatest challenge in raising retail is not the distribution or awareness of their offering, but the conversion or win rate of interested investors into actual payments. Using a marketplace limits insights into digital marketing performance and provides no viewpoint into investors’ “abandoned shopping carts” for re-marketing efforts, both of which are critical to raising a successful round. A self-hosted solution also omits the presence of any other brands’ visibility within your purchase funnel, a valuable upside both for potential purchasers as well as offering promoters
- You’re looking to raise a significant amount of capital
Raising $5M+ from a retail audience involves a high degree of complexity, ruthless precision, and powerful automation. Issuers looking to source funding rounds of this size from the crowd need full access to the marketing data mentioned above, as well as the ability to control payment processing charges/methods. Issuers would be wise to think of the sophistication of an online store processing $5M in annual sales, and using technology like DealMaker to replicate their workflows. In 2021, 10 issuers used DealMaker to raise $20M+, confirming that more sophisticated technology is a requirement for premier raises.
Founders – You Owe It To Yourselves to Consider All the Options
At its core, the JOBS Act has always been about taking meaningful and modern measures to benefit growing entrepreneurs and providing dynamic investment opportunities to everyday investors. Its intent, at a high level, was to put control back into the hands of the individuals and businesses that power the heart of the American economy.
In that spirit, the mentality of a “do-er” is not one of complacency – issuers who want to pursue a leading equity crowdfunding campaign should not settle for the status quo. Seeking out the best tools, allocating the resources, and budgeting the necessary money and time are critical to a successful campaign. Our team is proud to be working with and powering those issuers who are pushing the boundaries of what “marketed” raises can accomplish. Retail investors have always been at the core of our financial systems, and we’re proud to be working alongside talented customers and partners to make them a critical component of the future of the private capital markets.
We thank Aaron Shafton for this insightful article that does a superb job in educating the public as to the viable alternative of DIY crowdfunding when it comes to raising capital.