Equity crowdfunding has transformed how businesses can raise capital, allowing investors to support exciting start-ups while nurturing a unique bond between the company and its shareholders.
At the heart of this process lies investor relations (IR), essential to fostering trust, improving communication, and ultimately building a successful crowdfunding campaign.
Investor Trust, Essential for Equity Crowdfunding
Developing trust is essential for any company raising capital, especially high-risk, early-stage start-ups and private crowdfunding companies. The key is to develop a strategy which must prioritise transparent and consistent communication with investors about its operations, finances and future plans.
This helps to manage investor expectations, reduce uncertainties and respond to any concerns. It also assists crowdfunding companies to build a reliable investor base and gain potential investment.
Virtuix, a US-based virtual reality tech company, demonstrated all this during its 2016 RegA+ equity crowdfunding campaign on SeedInvest. It raised over $7 million from over 6,000 investors.
Communication, Driving Equity Crowdfunding
Investors must also understand a company’s unique value proposition, business model, and growth strategy. Regular updates on business operations, management and market conditions are key.
Elio Motors, an American start-up aiming to produce energy-efficient vehicles, understood this during its crowdfunding campaign, effectively engaging with potential investors by providing regular updates, webinars, and live Q&A sessions. This strategy significantly contributed to its successful $17 million RegA+ capital raise on StartEngine.
The Consequence of Ignoring Investor Relations
US-based tech company Healbe, whose innovative product automatically tracks calorie intake through the skin, launched a RegCF crowdfunding campaign on StartEngine in 2018.
Despite an initially strong start due to the product’s novelty, Healbe faced increasing scepticism about its technology’s veracity. Healbe fell short of quelling these doubts through its investor relations, providing sporadic updates and weak communication, despite eventually being able to deliver on its calorie-counting wearable.
In the dark about the progress of the technology and the company’s plans, investors became increasingly restless, resulting in a funding slowdown and a significant dent in Healbe’s reputation.
Healbe’s experience underlines the importance of proactive, clear, and transparent investor relations in a capital raise. Neglecting this can undermine investor trust, damage the company’s reputation, and ultimately limit fundraising success.
The Power of Investor Relations in Equity Crowdfunding
A strong IR strategy brings invaluable benefits to an equity crowdfunding campaign. It enhances a start-up’s reputation, supports successful fundraising, and draws diverse investors, all while helping young firms navigate turbulent times and manage investor expectations effectively.
Investors should recognize and accept the risks associated with investing.
Certain investments may require you to keep your holding for periods of many years with limited or no ability to resell unless there is a strongly regulated secondary market.
You may also have limited access to periodic reporting, see your holdings decrease and increase in value, or even lose your entire investment.
Investors should decide for themselves whether to make any investment, basing this on their own independent evaluation after consulting with financial, tax and investment advisors.