Why a raise with no reason to build anything falls flat
Crowdfunding investors back what the money will build. A raise to keep the company going as it is has nothing to sell, and no ad budget fixes that.
By Bryce W Jones4 min read
A crowdfunding raise succeeds when it can say what the money will build that is better than what exists today. A raise that exists to keep the company going as it is has nothing to sell investors, and in my experience it fails no matter how much is spent promoting it. The fix is not better copy. It is an honest look at whether crowdfunding is the right tool at all.
This is a pattern I see repeatedly in diagnosing raises that are not working, and it is the problem I most often find underneath what looks like a marketing problem.
What does a raise with no reason to build look like?
On a raise I worked on recently, I asked the founder directly why the company was raising. The answer was that it would be nice to have some extra cash in the bank for safety.
That is an understandable thing for a founder to want. It is not a reason for a stranger to invest. And although the offering page never said it in those words, it did not have to. A raise without a real purpose produces weak messaging everywhere: a vague headline, a use of proceeds that reads like a budget instead of a plan, ads with nothing to promise, and updates with nothing to report. The missing reason shows through every piece of the campaign.
Why "keep going" does not motivate investors
Investors in a Reg CF raise are mostly customers, fans, and people who believe in something the company is trying to do. What moves them is a picture of something better: a product they want to exist, a store in their town, a cure, a factory, a company that wins its market. Better for whom matters less than that it is better for someone.
Measured against that, the messages a weak raise ends up with rank like this, from worst to best:
- "Fuel our survival." Nobody says it this plainly, but it is what a cash-cushion raise communicates. It asks investors to take on risk so the company can avoid it.
- "Fuel our growth." One step better, and still empty. Every company says it. It gives the reader nothing to picture.
- A specific thing the money builds. The second location, the production line that cuts the price in half, the certification that opens a new market. The reader can see it, and can check later whether it happened.
Only the third one sells. The first two are the same message at different volumes.
How do you know this is the problem?
The signature is a raise that spends heavily on marketing and gets almost no investors. I was recently asked to diagnose a raise that had spent more than $200,000 on ads and raised a small fraction of that. The ads were not the problem. People clicked, landed on the offering page, and found nothing worth investing in. More spend only bought more people who left.
When the traffic is real and the conversion is close to zero, look at the reason for the raise before you look at the targeting, the creative, or the landing page. Optimization multiplies a message. It cannot create one.
What should a founder do about it?
First, ask whether crowdfunding is the right fit. If we are having this conversation, it probably is not. A company that needs a cash cushion has better options: a bank line, revenue-based financing, cutting costs, or simply waiting until there is something to build. Crowdfunding is public, slow, expensive to market, and permanent on EDGAR. It suits a company with a reason to grow that a crowd can get behind. Is crowdfunding right for your company? walks through the fit question.
Second, do not dress up a bad reason. Some people will suggest taking a raise that is really about survival and writing it up as a growth story. I think that is unethical, and it is fraud. The use of proceeds in a Form C is a legal disclosure (17 CFR 227.201(i)), not a tagline, and the securities laws make issuers liable for material misstatements and omissions in it. A plan the company does not intend to carry out is a misstatement, however good it sounds.
Third, if there is a real plan, lead with it. Some companies have a genuine reason to build and simply never said it. That is fixable. Put the specific thing the money builds in the headline, the video, and the first screen of the offering page. Make the use of proceeds match it line for line. Then report progress against it in your updates, so investors watch the plan happen. If the plan changes during the raise, that is likely a material change, which means an amendment and reconfirmation from existing investors.
This is general information, not legal advice. What your use of proceeds must say, and whether a change to it is material, are questions for your securities counsel.
FAQ
Why do some crowdfunding raises get traffic but no investors?
Often because the raise has no compelling reason to exist. Visitors arrive, find no clear picture of what their money will build, and leave. Better targeting or creative only sends more people to the same answer.
Is raising money for working capital or a cash reserve a bad use of proceeds?
It is a legitimate business need, but it is a weak reason for a public crowdfunding raise, because it gives investors nothing to back. A company in that position should usually consider other financing first.
Can a company describe its use of funds as growth if the real goal is a safety cushion?
No. The use of proceeds is a legal disclosure in the Form C. Describing a plan the company does not intend to carry out is a material misstatement, and we consider it fraud, not marketing.
How specific should the use of funds be?
Specific enough that an investor can picture the result and check later whether it happened: what will be built, roughly what it costs, and what changes once it exists. The marketing and the Form C should tell the same story.