How to successfully pass the selection process of a crowdfunding platform?

Among the various obstacles to overcome when deciding to start a crowdfunding capital raise is the need to convince the selected platform to host it. In most cases, in fact, crowdfunding portals make a careful assessment of projects before deciding whether to publish them on their site, taking into account factors such as the company's growth potential and financial results achieved. In this article we look at what you can do to best present yourself to the platforms and ensure that your application is successful.

What does a crowdfunding platform do?

Before moving on to the central theme of the article – how to pass the screening of a crowdfunding platform – it is first necessary to understand what the role of the platform is in a crowd campaign. In other words, what exactly does a crowdfunding platform do?

The answer is simple: the job of a crowdfunding platform is to host the campaigns of companies that need to raise money to finance their project. They are, therefore, real showcases where companies can "expose" their investment offerings to interested people.

In addition, the recent European Crowdfunding Regulation (ECSP) has established a number of obligations for certain types of platforms to comply with. These obligations apply, in particular, to equity crowdfunding and lending crowdfunding platforms – which must hold an appropriate license to operate –and include the adoption of specific transparency and conduct requirements to protect investors (find more information in the dedicated article).

What does a crowdfunding platform NOT do?

Equally important is to understand what not to expect from a crowdfunding platform. Many people believe that in order to raise funds, all you have to do is post your project on your chosen portal and simply wait for it to bring in the investors needed to reach your goal, but this is not the case at all. 

Let's make it clear once and for all: a crowdfunding platform does NOT bring in investors! The task of attracting people interested in participating in one's campaign is exclusively up to the company, not the portal hosting its fundraising. Moreover, under the new EU Regulation, platforms are prohibited from explicitly promoting individual campaigns. It is the entrepreneur, therefore, who must take care of carrying out all the actions necessary for the success of its collection, which should always be considered as a real marketing operation.

Implementing proper marketing and sales processes, perhaps using referral or affiliate marketing, is crucial to ensure that you attract a good number of investors who won't magically show up just because you posted your campaign on a platform.

How are projects selected by the platforms?

So let's cut to the chase: how do crowdfunding platforms select projects to host on their site from the various applications received?

Lending crowdfunding platforms, as well as equity crowdfunding platforms, have a dedicated selection team that is in charge of screening the projects of companies wishing to launch a campaign. This is because the success of the platform is closely related to the success of the campaigns hosted by it, so it is crucial to make sure that the selected proposals have all the makings of a successful collection.

First and foremost, the platforms thus carry out a financial and economic assessment, looking at aspects such as turnover, growth potential and the company's actual ability to achieve its goals. For this reason, in the vast majority of cases, preference is given to companies with projects that are already well established, rather than startups in the very early stages (but there is no shortage of exceptions, especially when they are active in particularly promising sectors). The criteria used for selection may also vary depending on the type of fundraising. For equity crowdfunding campaigns, for instance, the return on equity (ROE) is taken into account, whereas in lending campaigns, which involve debt underwriting, it is important to evaluate the company's credit rating.

Another aspect that can play an important role in selection is environmental and social sustainability: in fact, platforms tend to prefer companies that are careful about their impact on the environment and the well-being of their workers.

As for donation and reward crowdfunding platforms, they also conduct, in some cases, an entry selection to verify that the proposed project is suitable, while in others they offer the possibility of directly uploading the project to the platform, without the need to pass any selection.

How best to present yourself to a platform?

As mentioned earlier, the success of a platform depends on the success of the campaigns it hosts. In particular, their earnings may depend either on the amounts of money raised (of which the platform receives a percentage) or on the economic transactions of individual investors. For this reason, platforms have every interest in selecting companies that can guarantee that they will meet their collection goals.

To offer this kind of "guarantee" and ensure that you pass the portal's selection, it is therefore a good idea to present yourself to the portal with a good number of people interested in investing: the best way to prove that your campaign will be successful. Therefore, entrepreneurs should work on finding potential investors even before proposing their project to the platform, looking for them first among their clients or potential clients.

This is useful advice not only to pass the platform selection, but also and above all for the company: in fact, it would be very risky to start a collection without knowing if and how many people are actually interested in joining. To learn more about this aspect, we suggest you read our article dedicated to the importance of precrowd, that is, the phase prior to the launch of a campaign, during which one deals, precisely, with researching and engaging potential investors

Having ascertained the need to collect a sufficient number of statements of interest in the investment, all that remains is to figure out how to do it.

1. Firstly, start talking about the project to your audience, listing its features and benefits and presenting the opportunity to invest directly in its growth. Please note: If you are going to launch an equity crowdfunding campaign remember that you are not allowed to talk about the economic values of the project until you have made arrangements and published it on a platform, but this should not stop you. At this stage, you can send your audience a dedicated form where you can ask people if they are interested in your product/service and, if so, how much they would be willing to invest (without giving any indication of the value of the shares corresponding to their potential investment).

2. Use rewards to encourage people to give you feedback on whether they will participate in crowdfunding, offering them – in exchange for their "promise" to invest – better rewards in comparison to those who will invest directly instead (rewards that, of course, they will receive only after they actually make the investment, once the campaign opens).

3. Only at this point, backed by the numbers you have in hand, can you propose your project to the portal. The fact of presenting yourself with a large group of people already ready to invest (and thus with the “guarantee” of reaching the minimum target), will make you look good, clearly differentiating you from those companies – and there are many of them – that submit without even knowing how crowdfunding works. This will give you not only a higher probability (not to say certainty) of passing the portal selection, but also better treatment and more advantageous economic conditions.