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The Power of Community: Investor Crowdfunding vs. Venture Capital
June 6, 2022
If you’re a founder looking to raise money, building the business case for a VC firm is probably something you’re working on. The vast majority of startups dream of attracting significant VC money during a capital raise - it is the most traditional route for capital infusion.
However, getting funded via the VC route is very difficult. According to the OASB Annual Report for 2021 out of 100 companies vying for VC backing, only ONE company actually qualifies for funding. Given that statistic, it’s crucial to understand the alternatives to VC funding. Your company may find more benefit in raising capital via a Community Round (also called Investor Crowdfunding) instead. Here are some key differentiators when going a Community Round route (via Reg A or Reg CF):
- Control the Equity Released
- Build Your Brand & Mission
- More Valuation Flexibility
- Solve the Mid-Stage Desert Issue
- Be More Inclusive
Crowdfunding isn’t just a great way to raise capital - it’s also a far more democratic approach than the traditional VC route. VC firms, unfortunately, score very poorly when it comes to funding diverse entrepreneurs. Based on 2020 statistics, female and minority founders only received a combined 4.6% of VC dollars. The good news is that by crowdfunding your investors, you can actually level the playing field. As it stands, minority founders alone now represent +45% of Equity Crowdfunding raises.
If you’re trying to build something (a company, a product, a service) and not simultaneously building a community, then the future is likely dim. Customer acquisition costs have never been higher due to App Tracking Transparency (that’s a whole other post - explainer here) alongside increasing competition because it's never been easier to start a business in a world of AWS, 3PLs, Shopify, open AI models, and other software tools that are essentially a business in a box.
This is why community matters. Community by its nature is a group of like-minded individuals coming together, and this ultimately can equate to built-in distribution. And I cannot stress this enough: distribution is the best and biggest competitive moat. In some sense, distribution is all that matters; you could have the best product/service in the world, but without a distribution moat you’ll be left high and dry.
A great example of this is in the newspaper business – once upon a time the printing presses and physical ...morePosted at 11/28/2022 3:37:39 PM