Investors make good customers, but customers do not make good investors

Every raise with an existing customer base starts from the same piece of arithmetic. We have a million customers. If one percent invest at five thousand dollars each, the round is done before we spend a dollar on ads. It is the most natural assumption in this business and one of the most expensive, because the conversion it assumes runs in the wrong direction.

What actually happened

A consumer brand we worked with had a customer list well over a million people. Real customers, not scraped addresses. People who had bought the product, liked it, and stayed subscribed.

The raise was marketed to all of them. Not casually, either: proper sequencing, real creative, the full owned-channel program. Almost nobody invested.

Not a disappointing conversion rate. Almost none. The list that looked like the entire fundraising plan produced a rounding error, and everything the raise ultimately did was built on audiences found elsewhere.

The reason, in hindsight, is not complicated. Those people were there for the product. They had bought a thing they wanted, they were happy with it, and that was the whole relationship. Nothing about liking an object implies any interest in owning a piece of the company that makes it.

Why the two do not transfer

A purchase and an investment feel adjacent and have almost nothing in common.

Buying a product is a decision about yourself. Will I like this, is it worth the price, does it arrive quickly. The relationship completes on delivery and the amount is usually small enough not to require thought.

Buying equity is a decision about someone else. Do I believe these people can execute, is this market real, am I comfortable with an illiquid position I cannot sell when I want to. The check is often ten or a hundred times the product's price, the outcome takes years, and the honest answer is that most of these bets do not work. That is a completely different person in a completely different frame of mind, and it does not follow from a good unboxing experience.

There is one real exception worth naming. People who backed a rewards crowdfunding campaign bought a promise from a company that did not have the product yet. That is much closer to investing behavior, and those audiences do respond differently from ordinary retail customers. A list of Kickstarter backers and a list of e-commerce buyers look the same in the database and behave nothing alike.

The direction that works

Now run it the other way, because this is the useful half.

Someone who invests in your company becomes an unusually good customer. They own a piece of the outcome, so they want the thing to succeed, which means buying it, telling people about it, and defending it in public. The purchase is no longer a transaction, it is a small act of loyalty toward something they have a stake in. They buy more, they buy again, and they bring people.

So the flow that works is to advertise the investment opportunity, and let a share of the people who come for the offering become customers, including many who never invest but discover the product while evaluating it. The flow that does not work is to assume a purchase history predicts an investment.

Which means the investor campaign is also a customer acquisition campaign, and should be measured that way. Product revenue attributable to the raise is real money that most companies never count, and on some campaigns it is large enough to change how the whole program should be budgeted.

What to do about it

Still market to your list. It is the cheapest audience you will ever reach and some of it will convert. What changes is the expectation.

Do not put the list in the plan as a number. Treat whatever it produces as upside. A raise whose budget assumes the customer base will carry the first third of the target is a raise that discovers it is starting from zero in week three, with a closing date already fixed.

Segment for the people who are more than customers. Repeat buyers, people who reply to emails, people who comment, people who came in through a crowdfunding campaign. Buried in a large list is a much smaller one of people invested in the company rather than the object, and they are worth finding before launch.

Let the raise sell product. Put a path to purchase in the investor funnel, tag the traffic, and count what it produces. You are paying to introduce the company to thousands of people who will never write a check and might happily buy what you make.

Watch the expectation you set. A customer who invests because the email made it sound like a product promotion is a support problem later. Investors who arrived understanding what they bought are the ones who behave well when a timeline slips.

The uncomfortable version of all this: a large customer list is a marketing asset, not a fundraising asset. Any plan that treats it as the latter is skipping the work of finding out who your investors actually are, which is the work described in agencies-guessing-at-investor-targeting.

FAQ

Will my existing customers invest in my equity crowdfunding raise?

Some will, and far fewer than the arithmetic suggests. We have seen a list of more than a million real customers produce almost nothing in a well-run campaign, because those people were there for the product. Market to them, and do not build the target around them.

Why do customers convert so poorly into investors?

A purchase is a judgment about whether you will enjoy something, settled on delivery, at a small price. An investment is a judgment about whether a team will succeed, settled over years, at a much larger price, with no ability to sell when you want to. Liking a product says almost nothing about the second question.

Do rewards crowdfunding backers behave differently from customers?

Yes, and it is the main exception. Someone who backed a Kickstarter or Indiegogo campaign paid for a promise from a company that had not yet delivered, which is much closer to how an investor thinks. Backer lists are among the warmest investor audiences that exist.

Do investors actually become customers?

Frequently, and it is the strongest version of the relationship. An investor has a stake in the company winning, so they buy the product, buy it again, recommend it, and defend it publicly. Tracking product revenue that originates in the investor funnel is worth doing, because most companies never measure it.