Dear Future Lords of Venture Capital,
Stop launching RegCF crowdfunding portals.
Morning Beautiful People! That sentence is the TLDR version of this article. The next line is, “Partner with existing portal owners as the hardest part of crowdfunding is the crowd.”
The three reasons why you should partner with an existing RegCF portal vs building your own are:
Affinity Crowd - you’ve never heard of that portal because in 2016 Founder’s egos imploded it before it even got off the ground. That lesson in why entrepreneurship is so hard I only recommend it to my enemies, cost me a mere $500k. Fortunately, since I’ve paid that iron price you don’t have to. Learn from my mistakes, don’t repeat them.
$3M for 18 months of runway. If you try to launch your own RegCF crowdfunding portal it’ll cost you at least $3M. I know. I know. No one believes this number. Download this excel sheet and play with the numbers and remember, if you’re only charging 3% to 8% of the raise, it gets really easy to calculate how much deal flow you need to do to break even.
Lastly, crowdfunding works best with a crowd. That seems sorta obvious until I speak to so many Founders who want to be portal owners. They’re so stuck on making it through the SEC/FINRA process that they completely whiff on the crowd. The bulk of your funding will go to growing your crowd, if you have no crowd to start off with. If you have a crowd to begin with, then you have to train your crowd to be investors. If they’re already investors, then you have to….You get the idea. At the end of the day future funding portal owners are not a) developing a sales funnel and process b) calculating their customer acquisition costs c) understanding that the upfront Issuer education is a time (and money) suck
So! Before you bet your life’s savings on standing up a crowdfunding portal pause and ask yourself this one questions:
How am I solving for The Crowd in crowdfunding?
Think on that and then visit FINRA and see the list of existing RegCF portals and start cold calling to see who you could potentially partner with to solve the question of, “How do I create the investment community needed to sustain a funding portal, before running out of cash?”
Good luck! And may the odds and algorithms forever be in your favor!
My name is Samson Williams. I am from time to time President of the Crowdfunding Professional Association and investor in at least one *successful crowdfunding platform (GoingPublic.com) and numerous ones that have failed. So, please take my rantings with a grain of salt and as in all cases do your own research.
*successful comes with an asterisk in entrepreneurship because the key to any startups overnight success is the first 10 years. So, GoingPublic.com is startup “successful” in the sense that it’s made its first dollars, out of its first year and has just enough runway to try again next year to make its short, 10 year overnight success story super short.
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Great post, Samson!
I may be gloomier than you on the business model of a portal. I share or perhaps exceed your enthusiasm for the benefits of crowdfunding. I'm grateful to those willing to operate portals. It is a tough business. I'm excited by the market that is developing for entrepreneurs to raise capital in this new and powerful way!