How a Platform Selects Private Opportunities – An On-Demand EarlyShares Webinar

PI-101-SelectsWhat are the eligibility criteria for private investment opportunities? How do different platforms screen and select offerings for investors?

ln this Private Investing 101 webinar, listeners will learn about offering screening and assessment on EarlyShares and throughout the private investing market.

For more on the Private Investing 101 series, click here.

Strategizing For a Successful Capital Raise

Reaching potential investors and persuading them to invest takes more than an interesting business and compelling offering page. You’ll need to work hard to market your investment opportunity successfully.

Different communications, promotional approaches, and marketing tactics will help you campaign to individuals in the various tiers of your network. For each ‘degree,’ consider the following:

Who are you talking to?

How well do they know you and your business?

What you are saying?

How are you communicating it?

What messages (and mediums) best suit your various audiences are comparable to the following examples.

Core-First

 

 

  • Your uncle or your best friend
  • Very well: Has supported you from the beginning
  • “Remember how I’ve been planning to raise my second round of funding? The offering is open on EarlyShares. Please make your commitment as soon as possible and let your friends & family know about the investment opportunity.”
  • Phone calls, personalized emails, invitations to your offering page

Your core and 1st Degree connections know you and trust you. They should already know that you’re raising money, and some of them should be ready to invest. Contact them personally as soon as you launch your offering and invite them to invest through your EarlyShares Dashboard.

2nd Degree

 

 

  • Your former coworker or your dentist
  • Moderately: May know you but know little about your business
  • “I encourage you to get to know my latest venture, an innovative $XXX million opportunity, that is currently raising funds on EarlyShares. I’d love to tell you more about it.”
  • Offering invitations, mass emails, social media, webinars, online networking

Your 2nd Degree connections will need to be reintroduced to you and familiarized with your venture before being pitched your investment. Use ‘get-to-know-you’ messaging in your communications and invite 2nd Degree connections to your offering webinar, in which you’ll make a direct and compelling investor pitch about your opportunity.

3rd degree

 

 

  • Your son’s teacher’s sister or any new acquaintance
  • Little: May be a complete newcomer to your business
  • “Hi, I’m… I’m the CEO of… We’re here to revolutionize the way… and we’ve already established the following traction in the marketplace…”
  • Introductions from colleagues, in-person networking, media coverage & PR, webinars

Reaching investors in the third degree requires ‘pounding the pavement’ to make new connections and generate ‘buzz’ about your offering. Attend every event you can and capitalize on your offering’s momentum to get earned media coverage. Also, share your offering on social media using the tools in your EarlyShares Dashboard and encourage your social media contacts to follow, retweet, and re-post your updates about your offering. This may help connections who are “friends of friends” on social media networks to learn about your capital raise.

Marketing Your Investment Offering: DIY Tactics

Screen Shot 2014-12-04 at 11.15.02 AMEarlyShares expands the reach of your investment offering and can help you reach new investors, but we count on you to consistently promote your offering through DIY marketing.

We recommend every issuer undertake the following efforts help make their offering a success.

Networking

    • Find, attend, and speak at startup, venture capital, and industry conferences or expos
    • Use meetup.com to find informal events where you can meet new connections related to your business
    • Request introductions to investors from members of your network

Media Outreach

    • Hound all reporters, bloggers, or other members of the media that you or members of your team know to cover your company or Offering
    • Send press releases about your business’ accomplishments (i.e., client acquisitions, new hires) and/or fundraising progress (i.e., 50 percent funded)
    • Write content for your own blog or website about your investment opportunity and try to ‘guest post’ it on other outlets

Social Media

    • ‘Share’ your Offering and consistently post updates on your company’s progress, media mentions, and fundraising efforts on LinkedIn, Facebook, and Twitter
    • Ask other businesses close to your company to circulate social media messaging about your Offering
    • Engage new social media users in conversations about your industry through group discussions on LinkedIn and hashtags on Twitter

Webinars

    • Schedule an EarlyShares webinar to give a more detailed pitch to interested investors and answer their questions
    • Invite your contacts to attend the webinar and promote it to new audiences through the methods above

Optional tactics include:

  • Online Advertising
    • Try a pay-per-click (PPC) search campaign or social media advertising
  • Email Marketing
    • Work with a vendor to purchase a list to advertise your Offering via email

How to Create a Compelling Offering Video

When you move into the Campaign phase of your investment offering – in which you’ll be marketing your deal to new investors – one of the most important elements of your offering page will be your offering video. EarlyShares does not expressly require that all issuers post an offering video, but we highly recommend they do.

The offering video introduces investors to you, your company, and your investment opportunity. Since first impressions are everything, it’s critical to invest time, money, and effort into making a compelling and high-quality video. We recommend that each issuer work with a production company or videographer to create a polished, professional video. (This can cost anywhere from $1,000-$5,000.)

In fact, we encourage issuers to post multiple videos. As you begin planning your Campaign, consider creating one main offering video and several others to accompany it – perhaps showcasing your products, company origins, awards/achievements, interviews, financials, or other content of interest to investors.

Your main offering video, however, should provide your elevator pitch. Even though it will be housed on your EarlyShares offering page, the main offering video should contain enough information to stand alone elsewhere – on YouTube, Vimeo, or your own web site.

Consider your offering video as having four general parts: Introduction, Pitch, Showcase, and Call to Action. Outline or ‘storyboard’ your video to include the following elements.

The Introduction

Basics: Who are you? What’s your business’ mission?

The Pitch

Hook: What is the problem, need, or opportunity you address?

Solution: How do you rectify the problem or capitalize on the opportunity?

Uniqueness: What makes you different from (and better than) competitors?

Market: Whom do you serve? What’s the size of your target market?

Model: How do you make money?

The Showcase

Status: Where are you now?

Traction: What milestones and momentum have you achieved?

Future: What’s your outlook? What concrete goals are you aiming for?

The Call to Action

Grab: Why should an investor invest?

Closing: Where can investors get more information? How can they contact you?

Additionally, keep in mind the following pointers:

  • As Founder or CEO, you should appear in your own video and so should key members of your team. It will help investors feel they’ve ‘met’ you.
  • Keep it short and direct – ideally, less than three minutes long.
  • Mix it up with graphics, photos, and other visuals to keep it engaging.
  • Highlight your most impressive numbers to grab investor attention.
  • Show off existing products or services in action.

Raising Capital 101: Equity vs. Convertible Debt

By issuing securities in your business, you are giving investors the opportunity to become owners in your company. You can do this on EarlyShares through one of two different forms of financing: equity or convertible debt. As you prepare your offering, you’ll need to decide which type to use.

Equity

To issue equity ownership in your company, you’ll need a pre-money valuation – an assessment of the value of your company prior to the round of financing you’re seeking through EarlyShares. (We recommend seeking a third-party valuation.) Based on this valuation, you will sell stake in your company at a set share price.

Once you reach your funding goal, you will have a new “post-money” valuation. Your new investors will know exactly how much ownership they have in your company based on that valuation and their investment amount.

Simplified example:

  • Your business receives a pre-money valuation of $1,000,000 with 1,000,000 shares outstanding, which puts your share price at $1 per share.
  • Your target fundraise goal on EarlyShares is $400,000. Four investors each invest $100,000 apiece, and you close your offering. Each investor receives 100,000 shares.
  • The post-money valuation is $1,400,000. Each new investor from your EarlyShares offering now owns 7.14% of your company.

Convertible Debt

In a convertible debt offering, investors are essentially providing your business with a loan, which can be turned into equity ownership at a future point in your business’ lifecycle (usually a financing or liquidity event) or be paid back, plus interest, to investors based on the terms of the loan. The loan accrues interest until the loan principal is converted or paid. Upon conversion, accrued but unpaid interest due to investors is also converted into shares.

Convertible notes typically include a conversion discount, which amounts to a discounted cost of the price per share when the shares convert. The discount provides an incentive to investors, enabling them to purchase shares for a lower price than will be paid by other investors in a future funding round.

Simplified example:

  • An investor invests $200,000 in your startup as a convertible note
  • The terms of the note are a 20% discount and automatic conversion after a qualified financing of $1,000,000
  • When the next round of funding occurs at $2,000,000, the investor’s note converts to equity

Given a share price of $1.00 and the 20% discount, the investor can use the $200,000 investment to purchase shares at the discounted rate of $.80 each, instead of the $1.00 price that other participants will pay. That gives the initial investor 250,000 shares for the price of 200,000.

Conversion caps can also be added to convertible debt. A cap sets a limit for how you can raise before a convertible debt investor’s shares stop being diluted. In the example above, if the pre-money cap was $5,000,000, the investor would still receive a 20% conversion discount up to that amount. If your company raises at a valuation over $5,000,000, then the discount would increase to offset the additional dilution taking place.