3 supreme tactics to dramatically reduce the cost of an equity crowdfunding campaign

Raising the development capital is especially common among private equity funds. Because they are so heavily regulated they have a huge burn rate that can reach millions of dollars per year on legal compliance. And they need to pay all these expenses even before they raise any money and get some fees they can use for operations. This is why before setting up the fund they obtain several million dollars in the development capital to support the fund while they are raising money for the main fund, which may be already hundreds of millions of dollars.

You may ask whether your initial investors will like the fact that you are spending their money not on developing your business but to raise more capital. There are two reasons why this is fine, which you should use in communication with people who are eager to invest in your business:

1. Marketing of your crowdfunding campaign is also marketing of your brand and your product, so this is money put to the right use.
2. It is a common practice to include the cost of the campaign in the list of expenses in your financial plan. If you still deliver satisfactory profits, your investors should benefit from it.

It is true that early investors take upon themselves higher risks and therefore it becomes more difficult to attract them. In order to reduce the risk and make investing in your business more appealing, a great practice would be introducing early-bird discounts.

An early-bird discount means that you sell shares at a discounted price to early holders of your stocks. The discount may be more than 50% depending on how early they come and how strongly you need money. These discounts are a very powerful way to get early stockholders on board because it provides them with a nearly instant profit: if today I purchase your share for 50 cents, and in a few weeks someone gets it for 75 cents, I make 50% profit in a few weeks, which is a super-exciting deal. If you combine it with the right to be the first to exit the investment, the deal becomes even more lucrative.

You need early investors not only to get the capital to fuel your marketing campaign but also to create social proof. People are social creatures, we prefer following the crowd to thinking on our own. This means that getting first supporters is harder because it seems like the crowd is not putting money in you. To overcome this social factor you need to turn on greed by offering great discounts. After you get early investors, the social factor starts working for you, and things become easier.

One of the biggest fears holding people back from investing in crowdfunding is the risk of never getting the returns. This risk is caused not only by your potential failure but also by the fact that the return on investment in private companies is not that easy because it is impossible to sell your shares.

This is where tokenization comes in. This is a powerful innovative technology that allows making your shares tradable at early stages, long before you go to the IPO. Tokenization transforms your shares into the form of blockchain tokens, which then can be traded on a specialized marketplace for tokens backed by securities. This deals with the principal problem people have with investing and allows you to stand out from the “crowd” of other crowdfunding campaigns.

Stobox offers a set of technology tools as well as industry and legal expertise in the fields of fintech and digital securities. If you are interested in applying tokenization to your business and learning more about security token offering services, schedule a free consultation with our team here.

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