Successful Crowd Financing Requires Strong Branding

When you hear the word “crowdfunding,” you probably think about Kickstarter, Cards Against Humanity, gizmos, gadgets, and more. The segment has exploded in recent years, with transaction value projected to top $1.2 billion in 2023. 

But exploding kittens and exceptional coolers are the tip of the iceberg. Thanks to the passage of the JOBS Act and the SEC’s implementation of those regulations, crowdfunding became an acceptable means of raising capital for business ventures. For the first time since 1933, private companies could sell securities in the form of equity, debt, and more to fund their operations and expansion plans.

Companies like Fundrise, Realty Mogul, and Crowdfunder were the first to use the term crowdfunding for investments. Over the past several years, the terms “crowd finance” and “crowd investing” entered the zeitgeist as common and more appropriate descriptions of soliciting funds for investment opportunities from large numbers of unrelated individuals.

But many mistakenly assume that capital raises through crowd financing operate in the same way as quirky crowdfunding campaigns on Kickstarter. They don’t. Crowdfunding for business differs dramatically in its goals, purposes, platforms, and end customer. Understanding these differences could make or break your own attempts to leverage the power of the crowd.

Traditional Crowdfunding is Not About Business

A crowdfunding campaign is when people are asked to contribute cash and, in exchange, the contributor (or backer) receives a future reward. This reward ranges from exclusive front-row seats at an independent movie to the first edition of a special book or the excitement of being one of the first to own a new product.

The Pebble E-Paper Watch is one such example of a crowdfunding campaign. The developers began their quest seeking traditional angel investors but were only able to raise $375,000. In 2012, they began crowdfunding with an initial goal of $100,000. With 68,929 people pledging money, the goal was met and surpassed within two hours. Six weeks later, they generated over $10 million. 

These backers did not make an investment in the company. They donated money to receive the first smartwatch. Those backers were happy with their “return” because a watch is what they expected.

But as the titans on Shark Tank often remind hopeful entrepreneurs, a great product does not an investible company make. This is especially true when founders fail to prioritize branding. In the case of Pebble, they went on to market more smartwatches through incredibly successful Kickstarter campaigns, and they sold a lot of them. They didn’t build their brand, though, and filed for insolvency in December of 2016.

Framing Value for the Investing Crowd 

Crowd financing is distinct from crowdfunding. Investors aren’t looking to receive a product, demo, or perk. They want (and expect) a return on their investment. 

Simply trying to sell an investment opportunity the same way one would sell a product all but guarantees failure. Investors already come to the table with a healthy dose of skepticism and fear of scams and fraud. Promises of great returns too often fall flat, and they know it. In a world without regulatory oversight but plenty of easy ways to create a website and falsify documents, you immediately face significant headwinds. 

As such, you have to alter how you communicate value when working with investors. They want granular details about a company’s financials, growth plans, and performance to date. They need to know what to expect in terms of ROI. And they will go over all of this information with a fine-tooth comb before signing any checks.

But part of their assessment won’t show up on a spreadsheet. They’re ultimately asking, “Who are you, and why should I trust you?”

The answers to those questions are rooted in brand. It’s what separates products from investible businesses.

What is a Brand, Anyway?

Entrepreneurial circles bandy about words like “brand” and “branding” a lot, but their application frequently fails to foster clarity. Consulting firm Ignyte offers a solid definition:

 A brand is the sum of how a product or business is perceived by those who experience it—including customers, investors, employees, the media, and more. Branding is the process of shaping these perceptions.

A brand, then, is more than just a company’s name, logo, product, or price tag. It’s more than the marketing and advertising around these things. A brand is the consistent and recognizable feeling that all of these things evoke.

A brand stands the test of time – think Apple. Their store signage doesn’t even feature their name. It doesn’t need to because that imagery is so widely recognized. 

Unless you live under a rock, you know what that apple with a bite out of it means – and it’s not just a reflection of the company’s name. Consumers associate the logo with high-quality and innovative products. That is the real brand. Its logo is part of its brand in that it is tied to social perception of and experience with Apple products. 

A solid brand backed by a solid company stands the test of time because it builds a loyal following. That loyal following creates long-term customers who will buy not only that first product but each new product in succession. 

Why Branding Determines Pitch Success 

You can talk about profit margins and product specs until you’re blue in the face, but that won’t be enough to get you investment dollars through crowd financing. Like any successful sales pitch, your communication with potential investors must stem from their needs. 

You need to show that you and your company have what it takes to make it in your market, with your plans. You must convince them they should trust you to deliver on expected returns. You have to get them to believe you can build a business that lasts– instead of ending up in insolvency as Pebble did. 

When crowdfunding for business, a well-defined brand allows you to tell that story, earn trust, and even get an investor excited about the opportunity that you are presenting. The most influential crowd financing platforms attracted early investors because they doubled down on trust-oriented branding. Its most successful users do the same to gain investors of their own. 

If you’re going to successfully “sell” crowd finance opportunities to would-be investors, your branding efforts should be a top priority. With a story involving consistent promotional activity and reliable user experiences, your pitch will be far more appealing. 

Creating a “Cool” World with Crowd Finance

Kickstarter founder Yancey Strickler knew the power of the crowd could change lives and the way we do business. In an interview a few years back, he explained his motivation this way:

Could there be a world where a great idea could happen just because other people thought it was cool? It felt like a universe that we should live in.

Crowd financing offers an opportunity for businesses and investors to better participate in that universe. But if your strategy is to use the same tactics you would in other fundraising efforts, you’ll fall short every time. 

Branding determines the answer to what might be the most important question for entrepreneurs seeking funding: 

Are you a company set up for success… or just another Pebble?

Want to make sure your startup succeeds where others have failed? You’ll want to give some of our on-demand webinars a look:

• The Startup Advisor series – learn more about the nuts and bolts involved with launching and growing a business
• Crowdfunding from the Startup’s Persective – dive deeper into the world of crowd finance
• Raising Capital: Negotiating with Potential Investors – elevate your communication and seal the deal

For more information about our other on-demand webinar series, click here.

This is an updated version of an article from March 2020. ©2023. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.