Entrepreneurs often place people into two categories: potential customers and potential investors. Unfortunately this means the average entrepreneur is missing their best source of investment capital. People who are customers are people who are already brand ambassadors. There is a relationship that has already been established and the customer finds it to be valuable.
Instead of approaching customers, entrepreneurs approach VCs or accredited investors to obtain the capital they need. With options available that allow an entrepreneur to sell their own company shares to the general public, entrepreneurs shouldn’t ignore their customer base as a third viable option. There may be more capital that is accessible in that third option than the other two combined and now it can be accessed fairly easily.
Recent Changes Make This Easier Than Ever Before
Changes to the regulations that govern raising capital make it easier than ever before for entrepreneurs to reach out to their customers for an investment. Software tools allow an entrepreneur to streamline the process so they don’t need a huge marketing team or an attorney on retainer full-time. This means even the followers an entrepreneur has on social media can become a source for capital.
Have you heard of Regulation D-506c? This update allows entrepreneurs to promote the fact that they’re seeking out an investment. It’s the first time in several decades that this has been allowed. It may be restricted to accredited investors right now, but entrepreneurs can advertise what they’re offering instead of being forced to have quiet conversations on the side about it.
This means customers and followers who financially qualify as an accredited investor can be reached with this type of offer. There may only be 7 million accredited investors in the US, but thanks to the prevalence of social networking, there’s a good chance an entrepreneur has got someone on their fan list who qualifies. Having a VC or angel who is also a repetitive customer is the best case scenario for an entrepreneur.
There Are Limitations To This Approach
The primary limitation to consider is the $1 million cap that most states have per year for entrepreneur to raise money. Some states require entrepreneurs to only receive investments from in-state customers. When this is combined with software that can directly manage an outreach campaign, then customers near and far can become an integral part of an entrepreneur’s future. These campaigns can even be run on an entrepreneur’s own website if there is a desire to avoid the crowded crowdfunding marketplace.
There’s also Regulation A+ to consider as well. Entrepreneurs can use this regulation to see if their idea has interest in the market before committing to a formal stock offering. Filing with the SEC can be time consuming and expensive. By using this regulation, entrepreneurs can see if their customers would be interested in making an investment without taking on the risks of the formal process.
If enough interest is generated through the customer base, then the stock offering can be officially registered. Prospective buyers are allowed to convert their reservations into actual shares once the registration becomes effective. If there aren’t enough reservations to make the effort worthwhile, then nothing is really lost. The time spent finding out that the market isn’t supportive enough provides needed feedback that can make the next effort more successful.
Now Is the Time To Build a Community
Crowdfunding is here to stay. There will always be the traditional methods of raising capital available to entrepreneurs in some way. To access the other areas of investment that are available, a community of customers, vendors, distributors, and accredited investors who are already fans of what is being offered needs to be formed. By engaging with this group, the entrepreneur is able to offer opportunities that help to share their personal story and grow deeper relationships with their customers.
This cannot be overlooked. In-person events must still happen so customers can directly engage with entrepreneurs, but there doesn’t need to be a formal crowdfunding campaign around to raise money. Entrepreneurs can do it directly from their own website if there’s enough interest in their idea. Compliment these efforts with the online engagement process so that customers, fans, and followers become excited about the idea of providing financial support to an organization and an entrepreneur they respect.
The end result is an entrepreneur who has a supportive online and offline community who provide short-term value through direct purchases and long-term value through direct investments. That’s why your customers will always be your best investors.
Strong proponent of individual liberty and free speech. My goal is to present information that expands our awareness of crucial issues and exposes the manufactured illusion of freedom that we are sold in America. Question everything because nothing is what it seems.