As overstated as it may be, the success of your equity crowdfunding raise is largely dependent on how effectively you market your campaign. The critical need to tap into cold, warm, new and old audiences is overlooked by many crowd-sourced funding (CSF) first timers, but made abundantly clear once having progressed into the expression of interest (EOI) phase.
In light of this, an emerging pattern has established itself over the last five years of CSF running in Australia - the role of social media in hitting your funding targets.
Organic and paid social media is essential to hit your minimum and maximum targets and close your CSF campaign successfully. As a general rule of thumb, and industry standard, it's recommended to spend 2% of your maximum raise target on digital marketing - which includes PR and social media ads.
Your advertising budget will depend on your current, organic market reach. Do you have a large, engaged database? Or significant following on social platforms? If yes, you may need to spend less to grow your EOI database.
Why is paid digital marketing critical?
For those who are unfamiliar with the CSF process, before accepting investments you will run an expression of interest (EOI) campaign. During this campaign, your goal is to grow the number of people who express interest in your campaign as largely as possible.
This EOI database then becomes your pool of potential investors who you can contact via email or phone to build a relationship and provide additional information on the investment opportunity and business potential. You will rely heavily on your EOI audience to fund at least 70% of your minimum target which then means you can push the campaign live.
Once live, the general public can invest and your deal becomes 'live' on your intermediary's site. Once the deal is live, the call to action changes from "express your interest" to "invest now".
It costs money to make money
To grow your EOI database as largely as possible, you will need to expand your market reach - this is why paid digital marketing is key. Because your CSF offer is online, everybody in Australia over 18 years old is a potential investor. Digital advertising, specifically through social media channels such as Facebook and Instagram, allows you to target the audiences you believe will be interested in investing.
For example, an audience may be created based on interests, age, gender or location. You can even create a retarget audience and lookalike audience based on your website traffic. The specific targeting capabilities of social media advertising allows you to quickly reach an audience that will understand what your business does and get excited about the investment opportunity, providing you with better chances of conversion in a cost effective manner.
But don't take our word for it...
You definitely need social media and a solid marketing budget. The mindset should be, if I spend $1,000 a day and I get $20,000 in investments, it's absolutely worth it. It takes money to raise money.
Of course, you'll need to run ads across Instagram and Facebook but I also think LinkedIn is underutilised, particularly for our product. LinkedIn is very expensive from an advertising point of view but it seems quite effectual. It depends on your product, but you absolutely need social media advertising.
- Andrew Morgan in The Rai$e Rundown, Hydrowood
Based on industry trends and data, if you're aiming to raise over $1,000,000 and don't have an exceptionally large database or network, you will need to allocate budget to digital marketing. It's worthwhile noting that CSF-specific digital marketing agencies usually permit companies to pay for 50% of their costs upfront and 50% upon successfully closing the raise. As they take on a certain element of risk (i.e. if the raise doesn't close successfully) they will charge a success fee, usually between 0.05% - 0.1%.
The multi-benefits of a CSF social media ad campaign
Perhaps the best part of running a CSF social media ad campaign is the multi benefits experienced by small businesses. Although you are advertising your capital raise, you are also advertising your business to your target audience - potential customers, suppliers, partners, and individuals operating in your industry.
Again, don't take our word for it...
Targeting our own database through the social media advertising was key because there was a large part of our database which wasn't subscribed to receive emails. That really helped expand our market reach. It put us out there in front of them and reminded them of the brand, which even increased our sales.
Social media ads were also a good reminder to previous customers to let them know we’re still making innovating and developing new products because a lot of our range has been out for a long time and our products are very durable. So, people may have bought one of our ice box’s 20 to 40 years ago. So yes, social media advertising was a necessary tool and great way to get in front of customers and advocates.
- Graham Reberger, Founder & CEO at Techni Ice
Because of the increase in brand awareness, it's very common for small businesses to experience an increase in sales and leads from their CSF ad campaign. This lowers customer acquisition costs whilst simultaneously growing your marketable EOI audience. Win win!
So, if you're considering a CSF raise, remember it takes money to raise money and you will need to allocate a budget to digital marketing.
To learn more about equity crowdfunding, get in touch with OnMarket.