Raising capital for a startup or company at any stage of development should not just be a tedious necessity to survive and grow. In a modern, more efficient view, a capital raising is not just a capital raising; it is part of a structured marketing and sales strategy.
It's not enough to have a startup with a great idea or just do some healthy bootstrapping to get far. Nobody gives money away, and at some point you have to go out and get it. In the traditional conception of entrepreneurial life, seeking funding is a circumscribed activity separate from the rest of business activities, referring to the usual two or three parties (banks, investment funds, etc.).
It is a modus operandi that can work, but it does not bring efficiency or competitiveness. The strategy that maximizes efficiency and competitiveness is systematic capital raising as a business asset that takes advantage of all the opportunities of alternative finance instruments.
Systematic capital raising as a marketing operation
The main misconception that relegates crowdfunding capital raising to an isolated and occasional experience is to think of it as a financial operation. As we have already explained in other articles, crowdfunding is instead a marketing operation.
But the goal of marketing is to sell, one might argue, whereas the goal of crowdfunding is to raise money.
This is where the heart of crowdfunding efficiency is revealed: while raising capital, you are also selling your product or service.
A crowdfunding campaign, in fact, is supported by a series of marketing and sales activities that enable it to reach potential investors, potential new customers, old customers to be further retained-all in one fell swoop.
By applying marketing strategies to alternative financing methods, it's possible to exploit marketing levers different from the usual ones, innovative and based on angles of attack that are not normally available. And above all, which are generally not accessible to competitors. The result is to gain a competitive advantage, financing, customers, access to otherwise impossible objectives.
To achieve this, capital raising must become structural: a dedicated and ongoing marketing and sales process must be put in place, capable of monetizing the company's growth while progressively improving sales performance.
You need expertise and specific staff training. Not just on one type of crowdfunding, but on all of what we call "the 8 pillars of capital raising", because the most effective way to raise capital in the long run is to mix and match the different alternative finance tools available to you as needed.
1. Equity crowdfunding
Equity crowdfunding is probably the best-known alternative financing mode by now. It allows companies to raise funds through the sale of shares or equity to an online audience of investors.
Those who participate in equity crowdfunding campaigns become shareholders of the company they decide to finance. The economic return on the investment will mainly come from profit distribution, the sale of the company, or the personal sale of shares.
2. Lending crowdfunding
A lending crowdfunding campaign is akin to a loan: the offering company collects money in the form of loans from investors and will have to repay it with interest based on pre-established rates and terms.
The advantage for the business is the ability to obtain liquidity quickly: a lending crowdfunding campaign usually has a short duration and much less red tape than applying for a loan at a bank.
We have delved into the main differences between lending and equity to understand the different needs that the two ways of raising capital meet.
3. Real estate crowdfunding
Real estate crowdfunding is actually not a true capital raising tool in its own right, but rather the specific application of equity and lending crowdfunding to the real estate sector. The use of online collective financing for the construction sector has had such remarkable market results that it deserves its own label, dedicated platforms and industry studies, and targeted marketing strategies.
In fact, real estate businesses have some distinctive characteristics that make them particularly susceptible to the benefits of collective financing: to find out all of them we refer to the dedicated article.
4. Reward crowdfunding
Reward crowdfunding involves raising economic resources for the development of a project, which offers supporters a prize (reward) in return. Usually, the project consists of the creation of a new product, and the reward is the product itself, which supporters receive in advance of its market launch, or on favorable terms, or even in an exclusive, limited version.
The concept of "reward" is actually fundamental to other types of crowdfunding as well: the exclusive and limited reward is always a lever to be used in seeking investors.
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5. Participative Financial Instruments
Big news in the EU Regulation on crowdfunding, it is actually a mode of financing that originated many years ago in the United States and is based on the S.A.F.E (Simple Agreement for Future Equity) designed by startup accelerator YCombinator.
A SAFE is an investment contract through which a party (safe holder) invests in a company in exchange for a participatory financial instrument, which gives him the right to convert that instrument into shares (equity) at a favorable price, upon the occurrence of a liquidity event, for example: capital increase, IPO, industrial acquisition.
It is a very effective means of encouraging investment in the early stage of a company's business, when there is not yet a chance to make a reliable assessment of the value of its shares.
The EU Crowdfunding Regulation will allow participatory financial instruments to be placed through crowdfunding campaigns, whereas until now it was only possible to do so through private negotiations, with increased costs and burdens.
6. Crowdfunding listing
Crowdfunding listing is the route by which Italian SMEs seeking capital and investors can enter Euronext, Europe's leading stock exchange, by replacing expensive IPOs with an equity crowdfunding campaign: it is the realization of listing on the stock exchange in a simpler, faster and cheaper way.
7. Initial Decentralized Exchange Offering – IDO
Not just traditional crowdfunding: new ways of raising capital "from a crowd" involving the exchange of coins and tokens, or virtual assets, are also emerging.
IDO is the issuance of utility tokens on a decentralized exchange platform to raise funds for a project or business. The main difference from the previous types of collection mentioned above is that IDOs allow a decentralized investment community to be directly involved in a project, without any need for intermediaries. This eliminates the exchange fee required by platforms and provides greater control of funds.
8. Security Token Offering
The goal of this type of collection is the tokenization of tangible and intangible assets of a company, enabling the buyer to legally own an asset, purchased through coin or fiat currency.
In other words, an STO is a contract regarding an investment that represents legal ownership of a physical or digital asset that has been verified on the blockchain.
Both the company that places Security Tokens via blockchain and those who want to invest by purchasing them must demonstrate that they meet the necessary requirements and in line with the Security Exchange Commission (SEC): precise and strict regulation makes this type of underwriting very safe for both parties.
Some of these ways of raising capital have been alternative but widespread for a long time, others are only now beginning to take hold, which is why the time to figure out how to master them is now: including the 8 pillars of capital raising among your business assets allows you to grow your business with multipliers that your competitors are probably not yet using.
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