Customers have more money than VCs

Hello Beautiful People, Founders, Entrepreneurs and Business Owners! Ya’ll rock and I want you to know that I love each and every one of you. What you do as innovators and creators truly does make America Great. Did you know that because of your hard work since 2016:

$585M has been raised via investment crowdfunding
Resulting in a total of 88,000 new jobs and
An economic impact of $3.2B over 1000 local communities across all 50 States

The real awesome thing is that in 2020 alone, JOBS Act Investment Crowdfunding generated $214M in small business funding, an increase of 105% over 2019, and 35,000 jobs created during the Pandemic using a regulation that is limiting for both investors and businesses alike. And don’t even get me started on how Customers and Communities have responded to the opportunity to invest in Main Street businesses since the new rules went into effect on March 15, 2021. In case you missed it as of March 15, 2021 the new limit for Regulation Crowdfunding (aka RegCF) is $5M. In the first 48 hours alone, three businesses reached that annual $5M cap. Which means they can come back again in 12 months, engaging their 4K to 7K *Investomers and raise another round of $5M...if needed. (*An Investomer is what happens when your customers invest in your business. So, when you do your RegCF campaign make one of the perks a tshirt that says, “I’m a Your Business Name Investomer”. Talk about brand loyalty and free advertising.)

I had to throw some of those data points out (courtesy of Woodie Niess from Crowdfund Capital Advisors) as too often I hear, “Crowdfunding is a method of last resort.” To which I smile, cause I know exactly which species of Shark said this: Carcharodon carcharias. Which when translated from Latin to English means, “Venture Capitalist”.

Raising Money is Hard

Don’t get me wrong, the secret to raising money is having money to spend raising money. It does cost about $20K to $250K+ to try to raise $5M. Most of that is spent on government compliance and marketing. That or having a rich auntie. There is though another option. It requires about 10 years of trial, error, emotional highs, deep dark depression and loss of relationships both personal and business before you can lay claim to the mantle of being an “Overnight Success”. Arlan Hamilton from Backstage Capital and Sahil from GumRoad have already used the 10 years to overnight success formula to successfully raise $5M each from their communities. Actually, they raised more than $5M each as they raised $5M via RegCF and then had whats called “sidecars” (RegD offerings) to accept larger checks from accredited/institutional investors. Turns out, when there is a feeding frenzy of customers turned investomers Sharks desperately want to get in on the action too.

Customers have more money than VCs

The point of this article is to let you know the six bullet points below on why you should be considering capitalizing your business via RegCF….because Customers have more money than VCs. Don’t get me wrong, Sharks do have money. But if your only choice is to jump in a Shark Tank to fund your business - guess who is on the dinner menu?

#1 Recruiting customers is the #1 reason for launching a RegCF campaign
#2 is increasing sales revenue
#3 is creating lifelong brand loyalty
#4 is reduced CAC (customer acquisition cost) due to word of mouth advertising
#5 is supercharging your business’ organic growth
#6 maybe...to raise capital.
#7 Bonus - and this should probably #1. Raising capital on your own terms.

When a Shark invests in your business they’re expecting a 100x, 1000x or 10,000x or greater return. Too, when a Shark invests in your business they do so on their terms. Yes, they’ll give you lunch money, but only because they’re just fattening you up for dinner. And we all know what happens when you let a Shark set the terms. Again, you’re the dinner special. Too, and this is the crazy part, 50% of VC dollars go right back into advertising and marketing to get customers. Founders give up the Shark Share of equity and ownership to VCs, just so they can go spend half of the investment funds on customer acquisition. Why didn’t you just start by asking your potential, current and future customers to be your biggest investors?

Last but not least and not to beat the Sharks over the head with pesky facts like since 1997 Venture Capital has lost more money than Sharks have invested (did I tell you that Entrepreneurship is so hard I only recommend it to my enemies?) we come to the real reason why Customers have more money than VCs.

Your customers make your company profitable, not VCs.

In the blur that was 2020 a company called Quibi raised $1.78 BILLION dollars and promptly went out of business in less than 6 months. Thank god only sophisticated Sharks and wise institutional investors lost all their money in that deal. I actually don’t know what Quibi did for business but it was definitely not onboard customer and generate sales. As a Main Street business owner you know the lifeblood of your business is sales and revenue. You know who makes sales possible? Customers. Customers make it possible for your business to exist, be sustainable and even afford you a comfortable lifestyle. I know. I know. What Shark wants to invest $250k - $310k into a “lifestyle business” that will only generate a comfortable living for the rest of the Founder’s life and then be passed on from one generation to the next? How is a Shark supposed to buy themselves a new yacht, island or ex-spouse if they’re investment is only going to return them a 1x or 5x?

The average raise for RegCF deals isn’t $5M. In 2020 the average raise was about $266k (p31 on Crowdfund Capital Advisors 2020 Annual Report. Thanks Woodie!) Most Main Street businesses (and probably yours) don’t need $5M in capital. What most Main Street businesses need is Customers. Don’t just try to raise capital for your business, use RegCF to recruit lifelong, uber-brand-loyal customers. In another article we’ll talk about the Life-Time-Value of 1000 Investomers who each invest $250.00 into your business VS a single Shark who invests $250k. Spoiler alert - Investomers are worth more than Sharks.

Conclusion

A healthy ecosystem actually needs Sharks. I know I’ve been beating up on Sharks as being super-predators to young, early stage startups and business owners who previously had no other option than to jump in a Shark Tank and swim with the fishes. And I stand by that. The ones you’ve got to really look out for more than Sharks are so-called “Angel” investors. The best trick the Devil ever pulled was to go into investing. Angel term sheets and shenanigans are only potentially outdone by Accelerators and Incubators. But now that you’re aware of the full ecosystem of players and options know this about the future of capital formation:

Startups and Business will use RegCF and RegA+ to raise up to $5M and $75M respectively.
At this point, after having demonstrated traction and Customer engagement, increased sales and generating revenue (potentially even profit), businesses will engage Sharks, Angels and Institutional investors...if their capital needs exceed $75M annually. If not, they will go back to their crowd of Investomers if they need any follow on financing.
When (and if) Main Street businesses engage Sharks, Angels and VCs they’ll do so not while swimming in their ocean but from a position of strength, on a solid organic business foundation, with a 4K to 30K army of Investomers cheering them on from their captable; while generating $ millions in free marketing and advertising.

That is a very long winded way to explain a simple fact, “Customers have more money than VCs.” Just remember, raising money isn’t easy because entrepreneurship is hard AF. But now that you’re thinking about it the real question isn’t, “Should I pursue capital from the Crowd?” but, “When should I get started?”

Good luck! May the odds and algorithms forever be in your favor. Also, bonus, again from Woodie Niess, Fall (Sept - Dec) is when most investomers make their investments. Fall = Investor Season, plan accordingly.

Cheers!

About the Author

Samson Williams is a serial entrepreneur and accidental investor. When not starting business with his enemies (“Entrepreneurship is hard. I only recommend it to my enemies.”), Samson is an Adjunct Professor at Columbia University in NYC and University of New Hampshire School of Law where he teaches on blockchain, cryptocurrencies, FinTech and the Space Economy. Samson is also President of the Crowdfunding Professional Association and investor into two investment crowdfunding platforms Brite.us - CrowdInvesting Done Brite and GoingPublic.com. For more information on Samson visit www.SamsonWilliams.com and follow him on social @HustleFundBaby.