2. Table of Contents
IMPORTANCE OF ACCOUNTABILITY
NOTHING IS ANGELIS ABOUT ANGEL INVESTORS
TRUTH OR LIE? 5 FACTS ABOUT ADVISORY BOARDS
DO MEMBERS OF AN ADVISORY BOARD GET PAID?
FROM DEAL TEAM TO DREAM TEAM
RAISING MONEY IS EASY WHEN YOU FOLLOW THE 3 P’S!
GET INSIDE THE MIND OF AN UNPREDICTABLE INVESTOR
HOW TO ATTRACT AND KEEP INVESTORS ON ANGELLIST
LINKEDIN AS THOUGHT LEADERSHIP TOOL TO FIND INVESTORS
MYTH: CROWDFUNDING = MAGIC BULLET
5 DIRTY SECRETS OF CROWDFUNDING
NO SUCH THING AS FAILURE IN CROWDFUNDING
TEASER VIDEOS FOR EASILY DISTRACTED INVESTORS
P2P LENDING: A WIN-WIN SITUATION
THROW OUT YOUR PITCH DECK
3. The Importance of Accountability
After reading “Lean Startup” and reflecting upon the companies we have worked with over the past year,
I am constantly reminded of the importance of accountability mechanisms. The Lean Startup book has
been on my nightstand since I met its author, Eric Ries, at SXSW 2012. Understanding agile development
and MVPs, I thought there was not much to learn from the book until I heard Eric’s keynote. You may get
the punchline, but if you have not read the book or seen Eric speak, trust me, you need the context to
appreciate how to make a process work for start-ups. Understanding what a lean process is all about and
actually implementing the process is two very different things. And Lean anything doesn’t work without
Yes, accountability. The stereotype is that entrepreneurs don’t want accountability - if they had wanted
structure and regimen, they would have a corporate job. The reality is that an entrepreneur will never
find success without accountability. Business owners need to be accountable to their family, peers,
business partners and employees. Accountability mechanisms that are ingrained into the operating
system of a business, especially a start-up, clearly separates the winners from the losers. Without a
process of tracking progress and goals, a company has nothing. Eric put it best in the book “A lean startup
needs a process that provides a natural feedback loop”.
So for you business owners that don’t feel you have an operating process with accountability mechanisms
in place, start by reading Traction and Lean Startup. Then don’t be afraid to get a coach - much like you
would hire a trainer to help with your exercise regime. You may know how to exercise, but having a
trainer waiting for you at the gym at 6am - being paid whether or not you show up - holds you
accountable to meet your goals. A coach can come in many forms. It can be an organization like
Entrepreneurs’ Organization, a company like EOS and Gazelles dedicated to coaching small business
owners, or it could be an experienced mentor or advisor. Whatever form it comes in, small business
owners need a human accountability and support mechanism.
So as I reflect back on the past twelve months at over a dozen companies we have had the pleasure to
work closely with, the evidence is clear: accountability mechanisms married with operating systems work
is a clear differentiator from the achievers and flounders.
4. Nothing is Angelic about Angel Investors
Credits: Son of Groucho
“Angel Investor” is the most inappropriate term used in corporate finance. The term was conceived when
entrepreneurs saw individual investors as a “white knight” because individuals typically invest in
companies at better terms than professional investors (such as Venture Capitalists “VCs”, which is a small
subgroup of the private equity industry). Some professional investors have another term they use for
these early-stage private investors: fools.
Angel Investors are not angelic. Nor are they fools. There are no harps, angelic glows or halos bequeathed
on anyone. Nor does anyone deserve a dunce cap if they invest in a person / business that they really
believe in no matter what the terms are. (Maybe some pity, but no dunce cap!)
Angels are private investors and they have been around since money was invented. Investing in private
companies - or as most put it, Angel Investing, is the simple the act of parties putting money into a pot to
achieve a business objective. And all of the business people involved with the company own a piece of the
pot (aka stock, shares, membership units of an LLC, limited partnership units etc.) Now some business
5. people own more of the pot than the cash they actually put in because they have skin in the game - sweat
equity - these are the founders, inventors and early employees that are working for below-market
The reason I don’t like the term “angel” is because it is very misleading to the nature of the transaction
that needs to play out. Investors and entrepreneurs need to come together and agree on the pricing and
corporate structure. These are simply business people doing business deals. In my experience, most
angels do have some higher calling to their work because frankly their work investing in private
companies often underperforms owning other assets - most of which have much less emotional baggage
(like owning some shares of Pepsi or Google). These crazy business people invest in private companies
because they enjoy some aspect of it - whether it is the bragging rights at the country club, the inside
knowledge of the next big thing, adding “board member” to their CV, or just having an excuse to be
around the people involved in the company. Frankly, in my experience, these psychological motivators
can be as great, if not greater, than the actual potential financial reward at the end of the rainbow.
Angel Investors is a fun buzz term to use, but both parties - the investors and the entrepreneurs - need to
keep it real. We are all just business people working on business transactions that will hopefully lead to
personal and professional rewards.
6. Truth or Lie? 5 Facts About Advisory Boards!
Lie. Advisory boards can be extremely cheap, especially for start-ups. Many successful business people
love to give back and mentor early-stage companies and are willing to do it for free.
True. Properly assembled and executed upon, advisory boards provide accountability to the founder(s) /
executives. Research shows that peer pressure is very effective and telling your advisory board that you
will do something is a great way to have accountability without hiring your boss!
Lie. Most advisory boards meet formally for a few hours quarterly. It is helpful to have more frequent
meeting when they get started or around major corporate events (product launches, acquisitions, capital
raises etc.). The process of identifying, recruiting and assembling an advisory board does not have to take
more than 30 hours and 5 hours per month. It is all what you make of it.
Advisors = Cheerleaders.
Lie. Truth is they should be and that is your goal, but don't assume advisory boards will speak highly of
you or your company. This is the danger of "informal" advisors. We have witnessed many companies that
leverage relationships in their network to add a big name to their list of advisors only to have those
people not speak 100% positively about the company to others. This usually happens when founder(s)
solicit and get people to agree to be an "advisor" only to never have a real advisory board function.
Having advisors for the sake of a website / executive summary name-dropping with no real function to
the company is a red flag to the advisors and everyone else.
7. Not for Me!
Lie. Every business needs advisory boards. Medical and science-related companies have benefited greatly
from "scientific advisory boards" that gave them access to minds and talents that they could not
otherwise tap into. Every business owner needs a sounding board. Whether it’s a large company with an
existing board of directors, a start-up or non-profit, every entity's leadership team needs to utilize a
formal group of advisors to provide the framework for business growth.
8. Do members of an advisory board usually get paid?
Let’s hear some other experts weigh in on this great topic.
Adeo Ressi from the Founders Institute says, "When looking at Advisory board compensation, it ranges
from nothing to small grants (usually less than 0.1% of the company.) Cash comp is not appropriate".
Fred Wilson mentions, "In all cases you should be willing to cover reasonable expenses for board member
and advisors to come to your meetings if they have to travel. They key word is reasonable – you get to
define this. For example, I once sat on a board where the CEO insisted that she choose the hotel we stay
at and book the reservation (fortunately she had frugal but good taste).
Brad Feld states “In general, I don't value "advisory boards" very highly and as a result anyone who needs
cash comp to be on an "advisory board" is probably not that qualified for it. People do this for either a
little bit of stock or good karma to help an entrepreneur they like.”
Nivi from Venture Hacks and AngelList says, "Another data point: In my experience, Advisors who join
early (pre-financing) and kick ass can get .5% or more of the post-money".
Looking for a quick and easy Advisory Board agreement document? The Founders Institute has provided
this resource. Interested in learning more about Advisory Boards? Check out our Udemy course today.
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9. From DealTeam to Dream Team: 5 Recruiting Tactics From
the 1992 Gold Medalists
For this week's most recent Udemy course launch on DealTeam's, I thought it would be appropriate to
take you on a history lesson and jump back in time to 1992. Bill Clinton has just been welcomed into
office, the largest shopping mall in the US, Minnesota's Mall of America is constructed, Nirvana's "Smells
Like Teen Spirit" continued climbing up the Billboard charts and the Summer Olympics are held in
Barcelona, Spain. Wow! It feels good taking a trip down memory lane, doesn't it? Let’s look at how the
1992 USA Olympic Basketball team was recruited, what made them so special to be labeled the "Dream
Team" and how you can apply this approach to building your DealTeam. Their approach seemed to work,
according to NBA.com, "Many consider it the greatest team ever assembled, in any sport".
Michael Jordan, Larry Bird and Magic Johnson, those names seem to ring a bell, right? Barkley, Ewing and
the list goes on. With the announcement of non-collegiate players being allowed to participate in the
Olympic games, it gave the Americans a chance to leverage the NBA talent pool and put their best foot
What was this process like? How were they able to fit so many big names into one team? Not everyone
can be a star, but there needs to be a leader. Like in business, CEOs want to surround themselves with
the best. A lot of credit can go to former NBA coach Chuck Daly, who at the time, was the best coach in
basketball coming off two back-to-back championships. Daly, along with the rest of the selection
committee began running a process on who should join this team. People invest in people and the
management team is the driving force behind any success. That's why Chuck Daly and co. went out to
recruit the best Olympic basketball team in history.
The 5 recruiting tactics that can help you go from DealTeam to Dream Team.
Number 5. The selection committee leveraged the reputation of coach Daly, and used his track record to
spearhead the team. A coach, like a CEO, needs to be a winner, visionary and charismatic person to bring
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10. in top talent. A master recruiter will spot top talent and Chuck has been just this. Having been said to be
"having a reputation to be able to deal with smart players and also great with the media".
Number 4. Personality exceeds capability. Charles Barkley was a top player but was often looked at like a
loose cannon. He luckily made the cut and ended up becoming their leading scorer. The lesson here is
that you need to bring people onto your DealTeam that are easy to work with. Raising capital is a journey
and requires people with passion and grit. Barkley was a rare case. A company's chance of bringing in
investors is determined by the hustle and personality of each DealTeam member.
And Number 3. They kicked ego's to the curb and you should too. Basketball is a team sport and only one
guy can shoot the ball. Recruit DealTeam members who are willing to pass up on a 'shot' and pass the ball
for an easy lay up. This can mean members who are selfless and are committed to bringing money into
the business over everything else. This is also a warning sign to relying on intermediaries for introductions
to potential investors as they often have a vested interest in protecting their "relationships" by controlling
the communications. Ego can be be lethal to the fundraising process.
Number 2. Preparation. To have a successful raise, you need to have a DealTeam that is willing to put in
the work. This can involve helping build key materials, making introductions, setting up appointments,
and studying the company messaging to effectively articulate it to potential investors. So much of
fundraising is doing the leg work that leads up to the meeting. Find members who are willing to go that
and the main reason why the most talented players in the NBA were able to play together was because of...
1. Being a part of something bigger than yourselves. The players recruited to play for Team USA weren't
just playing for themselves, they were playing for the USA. Building a company and bringing money in can
be a daunting task. Recruit DealTeam members who believe in your companies mission statement as well
as the idea that this new cash flow will help make a bigger impact
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11. Raising Money is EASY when you follow the 3 P's!
Ok, got your attention, raising money is never really “easy”, but it’s significantly less stressful when you
follow 3 P's of raising money. These pillars will give you the foundation to sleep better and find comfort in
your capital formation journey.
Patience. Unfortunately most people don’t think about raising capital until they need it. The best time to
raise money is when you don’t need it! The average start-up takes 10 months to raise a seed round and
entrepreneurial thought leaders suggest entrepreneurs should not consider their capital raising effort a
failure until they have been at it for at least 12, if not 18, months (1). Even though I have personally been
involved with and witnessed this timeframe at work, it is still astounding to me how long it takes.
Understanding the duration of the journey and building the patience and tolerance will increase your
odds of success.
Persistence. The president of a company I am close to had a high-profile VC on the top of their get-toknow list. After a series of phone calls, emails and InMails, she finally got a response which included a
“thank you for being persistent”. I have had this happen to me personally several times in my career. The
stark reality is that the average business person is drowning in communications. If your purpose of getting
in touch is valid (not spammy etc.), I have found that the high majority of people appreciate persistence.
And if you ever do get a nasty response (which frankly I have really never seen), then that is great too
because you can cross them off your list and keep moving!
Process. “Yuck! That is why I am starting my own company” I can hear it now. Bureaucracy is bad, agility
is good... I know... I know... However, findings (2) show that even start-ups and small businesses need
processes like a big company. Reason? Processes hold people accountable and it is often the founder and
executives that need (and benefit the most from) accountability mechanisms. Want to guarantee your
fundraising success? Simple. You need to establish a process with accountability mechanisms. Raising
capital is just like selling your product or service. You need to target your audience and get efficient and
clever at getting in front of them. There are no magic bullets, no “perfect introductions” and nobody that
can “do it for you”. Success simply comes from a passionate and persistent DealTeam running a process.
That with a touch of patience and you will get the working capital you need to build your company.
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12. Ugly Puppies
Have you ever bought a dog? Did you notice that good looking puppies cost more than ugly
puppies? Weimaraner's are gorgeous puppies (and then grow up into crazy, high-energy dogs). Labs are
almost as cute as puppies (and then grow up into loving, slobbering, meat heads--and I love mine). You
can easily spend several hundred dollars for a purebred if not over a thousand for a dog with champion
bloodlines. Whereas to get a mutt from the pound, it is the cost to get it fixed plus $35.
All rights reserved by mk.martinez1
How does this relate to investing in startups? Ugly puppies don’t cost as much as buying a
purebred. When you talk with an investor you need to have your “dog house” in order. The more
prepared you are to deliver all due diligence material in a single organized repository, have articulated the
vision of the company and how you are going to use the funds, and most importantly how have you
endeared yourself to the investor. People only invest in people they like, and just like buying a dog, it is
the one that meets your needs and you have a bond with that gets purchased.
The more prepared you are and the more you have formed a “bond” with the investor, the more
generous they are going to be with terms. By showing up prepared and ready, you demonstrate to an
investor that you are serious and are going to be an outstanding steward of their capital. When you have
demonstrated that you have the traits to be best in breed and have a personal attachment with the
investor, that is when you get to charge a significant premium.
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13. Get Inside the Mind of an Unpredictable Investor
Credits: Desri Tate
"Emotion trumps logic."
Investors do not make funding decisions rationally. Take the time to understand investor psychology and
your startup will be at an advantage in the funding game. First, you have to know what drives investors
positively and negatively. Second, it’s not about money for investors. And lastly, you aren't there to sell
your product. On the positive side, investors are driven by the need to be ahead of the trends, to be part
of something amazing and they are looking for a great experience. They are searching for an emotional
experience they can't get anywhere else. On the negative side, they are risk and loss averse. Wikipedia
defines loss averse as, "the tendency for people to strongly prefer avoiding losses than acquiring gains.
Some studies suggest that losses are as much as twice as psychologically powerful as gains." Investors,
especially angel investors, have higher risk yet fund companies 10x more than venture capitalists. Since
angel investors fund only a few startups, each of those startups are a high risk for them, meaning, your
company is also a high risk. How can you use these two differing perspectives to your advantage? Why is
it that despite a higher risk for angel investors, they still fund more companies than VCs? By offering
investors an experience so enthralling, investors are willing to forego their fear of failure, shame and loss.
The experience is what matters to investors, not the money. Geoffroy T. Roach states in Angel Investing:
A Case Study of the Processes, Risk and Internal Rate of Return:
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14. "Angels may invest for reasons other than solely economic gain and are not rational
investors from the perspective of many economic theories...The second reason is the
satisfaction that one feels from being involved in a startup business...Angels see
themselves as investors who play an active part in the company."
If you allow investors to take part in your company, that experience of being part of a rich experience will
overcome their fears. Here are words directly from angel investor Ron Conway:
"It’s not about the money. For me, it’s one simple word: Because it’s interesting.
Angel investing is the most interesting thing you will ever do. If I could, I would
convince you in seven minutes to take the leap and start angel investing. Because if
you talk to an entrepreneur, and they are starting a company—usually, there are
about four cofounders in each new company—you get to listen to those
entrepreneurs tell you what is going to happen in the future. Entrepreneurs are a
crystal ball telling the technology industry where it’s going to be in four to five years.
There cannot be anything more exciting and interesting than being part of that. I’m
just completely addicted to it. There is no way I’m going to stop."
Angel investors, like Ron Conway, enjoys experiencing the passion and conviction of entrepreneurs.
However, trust is paramount in acquiring funding from an investor. Ron Conway states that he invests in
entrepreneurs first rather than their ideas. There's no doubt that someone else can create a better
product than you but what stands out is you. What is being sold is you and trust, not a product.
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15. How to Attract and Keep Investors on AngelList
AngelList is a great platform for connecting entrepreneurs with each other and with different types of
investors. The digital platform means location is no longer a priority. Physically presenting a company to
investors has evolved to include video chats and teaser videos to pique their interest. With over 42,000
businesses listed on AngelList, it is important to follow the steps below to attract and obtain investors.
The first half entails learning how to utilize AngelList as a tool in an effective manner. The second half
entails crucial basics that entrepreneurs should embody and present, transcending the medium used to
connect with and present to investors.
Attracting an Investor
Before you even get on AngelList, ensure you have a good company website and robust LinkedIn profiles
detailing current advisors and investors behind your company. Show your digital media acumen. Are you
easily searchable on Google? Do you have a Twitter account and do you have followers? Are you a
thought leader? Having these social networking accounts will enable investors to learn more about you
and your company and consider moving forward with a video chat.
Next, build a strong profile.
When selecting markets for your companies, use up all four markets and choose broad ones rather than a
new market your made up. Show your location as this help attract investors who want to invest locally.
Make yourself as comfortably visible as possible.
Have professional photos of your team members and provide a short description for each person
highlighting their expertise and experience. Post a high quality but affordable teaser video of your
company and product. For your product description, keep it under 250 words with bold statements about
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16. the product and what your company does. Also, add any press your received and customers to your
If you have investors already, have them register on AngelList and comment and/or recommend
you. Add them to your profile. This move is a win-win because it helps build their brand. Add your team
members, advisors and referrers to your profile and have them comment and recommend you. To earn
more credibility, add short descriptions of each person you add to your profile, detailing who they have
invested in or worked for. Next, ask them to share your profile with their followers. This will increase your
visibility towards other investors and expand your reach.
Create a list of potential AngelList supporters and ask them to share your profile. Once supporters
become your investors, let them be part of your team and ask them to comment, follow and recommend
Finally, reach out to investors in your network or who have followed you.
Once contacted by an investor for a video chat, do your due diligence on the investor before the chat,
such as research on their investment portfolio, their network, their LinkedIn for professional information
and find out personal details. This shows that you have an interest in the value the investor can bring and
not just focused on quick money.
Keeping an Investor
1. Be trustworthy. Don't lie about having investors or contracts if you don't have any. Don't pretend to
know an answer if you actually don't know. Don't cover-up negative information.
2. Do your homework. Make sure you can answer basic questions about your company, market and
3. Follow through. Simple actions such as calling when you say you will shows you are accountable.
4. Be coachable. Be open to alternatives suggested by investors. Allow them to speak fully and listen.
With the information provided above, you can navigate AngelList with ease and effectively. Good luck on
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17. LinkedIn as Thought Leadership Tool to Find Investors
Part of finding investors through LinkedIn entails having a robust personal profile and company page
demonstrating thought leadership. A profile detailing your accomplishments and knowledge of your
industry creates trust and shows your knowledge is up to date on industry trends. This inspires investors
to take a chance and engage with you.
What is Thought Leadership?
Thought leadership is a term coined by Joel Kurtzman in 1994, defined as people who have "business
ideas which merited attention." Thought leadership cannot be claimed by an individual; it is a status
bestowed to a person by their community. Rather than just having extensive niche or expert knowledge,
thought leaders share their knowledge in various venues.
Daniel Rasmus provided this definition:
Thought leadership should be an entry point to a relationship. Thought leadership
should intrigue, challenge, and inspire even people already familiar with a company. It
should help start a relationship where none exists, and it should enhance existing
On meriting attention, Brian Clark of copyblogger.com stated,
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18. In the realm of content marketing, authority is demonstrated, not claimed. Which
means leaders are not born or made — they’re selected by the intended audience
(much more in line with my more egalitarian experience of how content marketing
works). If you have the attention of an audience, you’re a leader already. And great
leaders plan, listen, observe, inspire, and then give direction. But most of all they
continue to demonstrate, in this case by freely sharing their valuable knowledge via
Thought leaders not only share their knowledge nor hold the attention of an audience, they pave a path
for the future and causes disruption. Investors that you connect with need to be able to share the same
vision of the future as you.
Within your LinkedIn profile, you can utilize the Headline, Summary, Update, Publication, and Reading List
sections in addition to integrating SlideShare. The Headline and Summary section should mention
important content that you have written, such as books. The Summary can also be used to list articles and
professional papers you have written or contributed towards. Updates should be posted once daily with
original or curated content you find valuable. Updates are visible only to your network but can be
changed to public. The Publication section is used to link to books, articles, white papers and other
professional written materials authored by you. The Reading List section shows books you have read
and/or are currently reading. This is useful for showing that you're staying on top of the latest
information in your field. Integrating SlideShare is good for providing additional original content and even
past presentation slides.
Rather than just staying on your profile to demonstrate thought leadership, using Groups, Answers and
Polls are good ways to be recognized by your community as a thought leader. With Groups, you can
submit your own content for discussion or join discussions by asking thoughtful questions. This is a good
way to be known then eventually recognized as someone with valuable knowledge. LinkedIn allows
joining up to 50 groups, so take the offer and join 50! Answers is another great way to show your thought
leadership in niche areas because there are many categories and subcategories. This allows targeting
specific audiences. To take it a step further, Polls asks the public to engage with you and share their
thoughts without requiring comments. Conducting a Poll can bring awareness towards you as the person
who submitted the Poll and may lead to further discussions of the topic. You don't have to be an
acclaimed thought leader, but sharing original and curated content shows a high level of credibility in
your space. Typically, it will eventually lead to “capitalizing on the dramatically enhanced brand equity
attained by being a thought leader.” In other words, it will help lead to investors investing in you.
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19. Myth: Crowdfunding = Magic Bullet
Myth: If I have a great product, the crowds will come
The reality is that crowdfunding works well for those companies that have already built a loyal base of
followers! For most start-up companies, crowdfunding is not the first place to look for money. Unless
entrepreneurs are ready to make the proper investments in a campaign for a crowdfunding success, it
can be a huge waste of time, not to mention an ego deflator when no one visits the site. Crowdfunding IS,
however, an excellent way to test your concept.
There are a lot of misconceptions around crowdfunding. The myths are perpetuated by word of mouth
and in the media because a few phenomenal crowdfunding successes stand out. It seems ‘too good to be
true.’ The truth? These successes are by far the minority; capital raises of a million or more are a tiny
percentage of all campaigns.
What most people don’t understand is that these highly successful campaigns had already built the huge
networks that were leveraged to support a successful crowdfunding campaign. Many of them also spent
significant sums on media relations, search engine and social marketing and even direct advertising. No
matter how many stories you hear about crowdfunding success, remember, the smart entrepreneurs
who got funding this way started building their fan base long before activating a successful crowdfunding
campaign to take in money.
The reality is that the majority of crowdfunding campaigns barely raise a few dollars. Crowdfunding is not
a magic bullet.
Crowdfunding = Social Proof
While most entrepreneurs think of crowdfunding with dollar signs in their eyes, a smarter way is to look
at the crowd is to envision them as future customers or investors ready to help in the early stage. Those
individuals who actually spend time on your crowdfunding site are the people who are interested enough
to tell you what they like and dislike about your concept. They might comment on anything from
packaging to pricing to how you describe your product. You will absolutely hear things you never thought
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20. of before even if your idea has been germinating for years. Get enough of these comments and you have
market data. Analyze the comments, interact with people online to go deeper into the topic and you will
get patterns that mean something. Put together these patterns of what people DO like about your
concept and act on them. That will gain you the social proof you need to make crowdfunding work.
By the way, this isn’t just something to do on a whim because it’s worth a try. Crowdfunding can provide
highly valuable market research with very little upfront cost. But you have to do your homework. Mostly,
you have to understand what crowdfunding can do for you right now. Are you ready?
Doing Crowdfunding Right
Crowdfunding is not as simple as posting a project on a website and hoping the crowd shows up. There is
a reason that big numbers do show up for successful campaigns. They are the ones who have used
advance PR to point people to the site. They’ve harnessed their networks to reach many more people
than a founder/entrepreneur could hope to reach alone.
Connect with as many social media groups and individuals in advance to make connections that are tied
to their interests, not just yours. Then add a dash of magic like an exceptional video and a project could
go viral. There is no overnight success; even in crowdfunding. It just looks like overnight success when
people have spent weeks or even months preparing to do it right. Nothing happens by accident.
The Secret Sauce
A clear articulation of the passion behind your product or business concept is the secret sauce that makes
any crowdfunding campaign successful. It takes a lot of work to get that message just right. An early
crowdfund post with a small dollar goal can be one of the ways to test your messaging so when it’s ready
to go for the Real Money, your story is perfected. And it’s real, because you’ve tested it with the market
you want to reach.
This is why entrepreneurs like Sean Stevens, founder of 4S Labs, was able to use Crowdfunding to
discover that the market did not exist the way he had originally envisioned. Crowdfunding was cheaper
than going into production for his iPhone wallet case. When entrepreneurs get plenty of positive, specific
feedback and support for the project that is social proof they can show to potential equity investors. This
third-party support makes the process of going to bigger investors that much easier. Perhaps more
important, getting positive social proof for a concept can tell an entrepreneur whether it's worth quitting
a job to make major life changes in order to pursue their dream. Entrepreneurs can't get social proof fast
enough! Just ask Sean Stevens.
“I hate theory. For me, as an entrepreneur, it is useless. So when the idea of
designing and building wallet cases for the iPhone platform with the help of the crowd
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21. (future customers who would vote and help us pick designs, colors, materials and
even the name) I needed to know if this concept could gain traction in the real world,
with real people...not just theoretical looks at market research, others who had gone
before us, etc. Crowdfunding allowed our 4S Labs team to quickly and relatively
inexpensively explore this theory without having to gamble on the theory. Even
though we weren’t successful in raising the necessary funds or building the product,
crowdfunding let us know that months ahead of time and hundreds of thousands of
dollars earlier than had we not used crowdfunding.”
Sean Stevens / Founder and CEO / 4S Labs
<This post is one chapter from Patrick's eBook "The New Fundraising Reality for Entrepreneurs", now
available on AMAZON and other eBook publishers.>
Ready to do Crowdfunding RIGHT?! Used correctly, it is a great tool to get publicity, and even get paid for
it! Learn about the tactics required to successfully use a crowdfunding campaign with our
course “Crowdfunding: It’s NOT for raising Money!”.
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22. 5 Dirty Secrets of Crowdfunding
Email Conversions are Low. Even to friends and family, the amount of pledges per email sent is very low. I
have heard an estimate from successful campaigns that they experienced 1 pledge for every several
hundred emails sent. In my own personal experience, it was 1 per 42 emails sent. We did not send the
large volume of emails that many big campaigns send. One founder of a successful campaign shared that
they had a conversion rate of 1:80. Follow this recent Quora post about email conversion rates.
Most people don’t know what crowdfunding is. When I did a crowdfunding campaign, we were surprised
how many people did not not know what crowdfunding even is. If you are reading this post, you are likely
to know what Kickstarter, IndieGoGo, Rockethub etc. are all about. Keep in mind that crowdfunding is still
in the “early adopters” phase of the innovation adoption lifecycle. These means that 8 out of 10 people
are largely unaware, or many not even heard of, crowdfunding. That being said, when conducting a
crowdfunding campaign, you may want to use terminology that is more familiar to a broader audience
like “pre-sale” or “product launch”. Crowdfunding, to some, may seem mysterious and potentially
dangerous, so keep the stated objective simple, especially if you are targeting a less tech-savvy audience.
Most funders are existing network connections. Estimates are that most campaigns have 90%+ of project
backers come from the project owner(s) existing network. This was definitely the case with my own
campaign. Rarely does a campaign go viral where they get a majority of traffic from outside of the
campaign owners’ network. The punchline for 99% of campaign owners: your network and marketing
efforts will determine the outcome of your campaign.
A lot of work. Sorry to break it to you, but crowdfunding campaigns aren’t easy! Many people have a
misconception that crowdfunding is an easier way to get money and attention to a business / project.
That is not necessarily the case. I know of a successful campaign that had 3 people working full-time on
the campaign leading up to and during the campaign and here is a Quora post of a campaign backer that
spent every waking hour on his $20,000 campaign.
Crowdfunding sites don’t get much organic traffic. Most of the traffic to a crowdfunding project comes
from the marketing of the project sponsor, not from loyalists actively browsing the site for cool projects.
Yes, to some extent, Kickstarter is the exception. The crowd is not waiting to come across your project.
The high majority of traffic to any crowdfunding project is getting theirs from direct links to digital media
posts about the project. Once again, the marketing is in the hands of the project owner. The only way to
get to the front page of a platform is to have enough momentum from pledges. The only way to create
the momentum is to make it happen initially with your network.
So why bother with crowdfunding? Crowdfunding does have a very important role for small businesses.
Used correctly, it is a great tool to get publicity, and even get paid for it! Learn about the tactics required
for a successful crowdfunding campaign with our course “Crowdfunding: It’s NOT for raising Money!”
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23. No Such Thing as Failure in Crowdfunding
At INVESTyR, we love encouraging others to try using crowdfunding campaigns. Failure doesn’t exist in
crowdfunding, even if by chance, your organization fails to reach its campaign goals.. If the campaign
does doesn't meet its goals and closes, you can run another campaign later. Otherwise, there are other
options such as peer to peer lending and angel investors. The campaign still has its uses in front of
investors in the form of social proof.
Failing the first time allows you to learn from your mistakes and create a better campaign and strategy
the next time around. If you want to run another crowdfunding campaign, do not target the same
customers in order to avoid bad reputation from your last attempt.
Having either a successful or unsuccessful crowdfunding campaign looks good to investors nonetheless,
showing social proof in several forms.
Social proof is defined by Wikipedia as:
Social proof, also known as informational social influence, is a psychological
phenomenon where people assume the actions of others in an attempt to reflect
correct behavior for a given situation.
Social proof is used under these circumstances:
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24. "This effect is prominent in ambiguous social situations where people are unable to
determine the appropriate mode of behavior, and is driven by the assumption that
surrounding people possess more knowledge about the situation."
Having a crowdfunding campaign with backers shows that you are trustworthy, your product has demand
and reinforces the investor's decision to support you. Multiple source effect is a mechanism of social
proof where people are more likely to believe in an idea where multiple people have supported. In a
study of door to door charity campaigns, researchers found that, "if a list of prior donators was longer,
the next person solicited was more likely to donate as well." With each backer of your campaign, you earn
more credibility in the eyes of investors.
One type of social proof is Wisdom of the Crowd--having approval from a large group of people. If you
already have a large group of backers in your crowdfunding campaign whether you met your goal or not,
the investor has less reason not to trust in you, your product, and your vision.
Investors like to see a line of customers. This eases their worries. Not only do you already have
customers, some of your crowdfunding backers can become brand evangelists. Because your product
already has customers lined up for it, it can create a "fear of missing out" mindset in the investor. This
psychological phenomenon often happens in venture transactions, as stated by TechCrunch.
Having run a crowdfunding campaign shows that you not only have social proof but you're digital media
savvy and stay up to date on trends. This is a plus to investors also.
With that said, do not be afraid to run a crowdfunding campaign or approach investors after an
unsuccessful campaign. There is no such thing as failure.
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25. Teaser Videos for Easily Distracted Investors
Credit: Timo Arnall
According to Dave McClure, most investors have a short attention span. This is why we recommend using
video in your presentation towards investors, especially when reaching investors online. When videos are
used in crowdfunding campaigns and on AngelList or Gust, it is much easier to articulate your message
quickly and in an effective manner. Using videos has become a trend, such that Angel Investors and
Venture Capitalists such as Bain Capital Ventures Innovation Center encourages start-ups to pitch them
virtually with videos.
"So when reviewing 20, 50 or 100 submissions for funding during the screening
process, I have found that it is incredibly helpful to be able to watch a quick (2-3
minute) video elevator pitch so that I can get an instant gut feel for the entrepreneur
and the company. I’ll be looking for all those same clues that I’d be watching for
during an in-person meeting." - David S. Rose, CEO of Gust
You don't want to simply talk at the camera how you normally would in a presentation with investors.
Understand and optimize video as a medium and use it to your advantage. Video is art, and in art, there
are principles and rules.
"Show, don't tell." This simple rule in creative writing can be applied to any art medium. Show your
passion and energy. Show who you are and your credibility. Show your product--even better, show
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26. people using your product and how it affects them, if possible, emotionally. Show the story behind your
start-up. DJZ and MUBI are good examples you can learn from.
Chip and Dan Heath discovered 6 principles that makes an idea stick--they call it SUCCESs, an acronym:
Simple — Simplicity isn't about dumbing down an idea but finding the core of the message and
Unexpected — Surprise the audience
Concrete — Get rid of abstractions and use sensory language
Credible — An idea is credible through outside authorities or from within with stats and details
Emotional — Focus on emotion rather than logic or numbers
Stories — Use a narrative to explore an idea
By applying these 6 principles, your video will be engaging and more influential. As for content, your video
should let the investor know who you are, what problem you are solving, who the product benefits, and
how you will implement your plan. For the problem and solution, consider this rhetorical question Dave
McClure asks: "“How does your solution tap into the emotional, powerful, evolutionary needs that we as
The purpose of your product will always be human driven and derives from emotions. Go on, tell your
story with video and capture the attention of investors.
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27. P2P Lending: A Win-Win Situation
"Superior access to capital improves lives." Credit: Gates Foundation
Peer-to-peer lending is an excellent option for acquiring start-up funding while benefiting everyone
involved--from the lender to borrower and even customers and employees of the start-up. Peer-to-peer
lending creates a win-win situation without giving up a certain percentage of the company.
Win-win sees life as a cooperative arena, not a competitive one. Win-win is a frame of
mind and heart that constantly seeks mutual benefit in all human interactions. Winwin means agreements or solutions are mutually beneficial and satisfying. We both
get to eat the pie, and it tastes pretty darn good!
- Stephen Covey
Peer-to-peer lending enables a win-win situation by eliminating the middleman: banks. The elimination of
banks allows borrowing directly from lenders while reducing the interest rate for the borrower and
ensuring a high, consistent return for the lender. Since there are no overhead costs required such as
those of brick and mortar banks, peer-to-peer platforms can afford to collect 1% of each loan while
providing great interest rates for both sides of the transaction.
The leading peer-to-peer platforms are Prosper and Lending Club. Both are similar in their requirements
for lenders and borrowers. Loan amounts range from $1,000 to $35,000 with higher risk and interest for
larger loans. However, some states do not allow Prosper and/or Lending Club so make sure to check your
state first. Prosper and Lending Club reject about 90% of borrower applicants while having strict income
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28. and net worth restrictions for lenders. Borrowers need to have a minimum FICO score between 640 and
660. Depending on the borrower's credit score, interest rates can range from 6% to 31% with an average
of 10%. This rate is lower than credit card rates for borrowers and a lot higher than a savings account of
1% for lenders, making it an attractive option on both end. Their requirements and high rejection rates
ensures a consistent repayment rate of 97% with minimal loan defaults.
With a successful transaction, your business can thrive and improve not only your life but those around
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29. Throw out your pitch deck!
The advice we received from my mentor when practicing our pitch for Inspiration Medical Technology
was “get rid of the presentation!” I laughed. I had given that same advice to others and it was a reminder
how humans naturally over rely on crutches like presentation materials to present a story.
A pitch deck serves one purpose - to engage an audience in dialogue. And most people over rely on
presentation materials to tell their story. That’s dangerous. Most presentation materials distract the
audience from what matters most - the presenter!
People invest in people. People want to have conversations with people. Humans naturally dislike
lectures. So don’t lecture potential investors, influencers, customers and employees with a pitch deck!
Instead, tell people about why you are in business, how you do it, and what it is and let the conversation
flow. And maybe you don’t even need any presentation materials to do that…
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