In this episode of Funding Innovation, we're answering common questions we get from founders and entrepreneurs about raising capital for their startups.
Rob explains why over-communication may be your hidden asset in keeping your community at the ready, and how celebrating milestones alongside frequent business updates can transform your audience into dedicated backers.
We'll also explore the relationship between share price, valuation, and voting power, plus we'll arm you with some strategies for answering investor queries.
Join us for an invaluable episode that could be the turning point in your capital-raising journey.
If you want to raise capital for your business visit us at https://netcapital.com/
In this episode of Funding Innovation, we're answering common questions we get from founders and entrepreneurs about raising capital for their startups.
Rob explains why over-communication may be your hidden asset in keeping your community at the ready, and how celebrating milestones alongside frequent business updates can transform your audience into dedicated backers.
We'll also explore the relationship between share price, valuation, and voting power, plus we'll arm you with some strategies for answering investor queries.
Join us for an invaluable episode that could be the turning point in your capital-raising journey.
If you want to raise capital for your business visit us at https://netcapital.com/
Kathy Kraysler:
Hello everyone and welcome to Funding Innovation with NetCapital. Today I'm speaking with NetCapital CEO, rob Burnett, and we're taking questions from startup founders who are about to begin their equity crowdfunding raises. We'll answer questions about how often you should email your community, how the number of shares in your company affects your valuation, and more so. Our first question is about how often is too often to email your community when you're fundraising. This is from an issue where she's worried about emailing her community too often, and so, before she launches, she asks what would be some benchmarks that they would want to hit in terms of email marketing and community outreach.
Rob Burnett:
Great question and there's a lot we can go into here, so I'll dive in. Feel free to interrupt me or ask any follow-ups as I go, but what I would recommend is putting together a sequence of emails. You certainly want tonow. If you've got existing communications with your community. You want to make sure they fit in nicely and appropriately. We almost universally see companies fall into the trap of not sending enough emails, not the trap of sending too many emails. Very rarely do companies send so many emails that they get themselves into trouble for spamming. Almost always companies send too few emails and they're not top of mind enough for their community. So for anyone here who's building an email campaign, I highly highly recommend airing on the side of spamming a little bit. Let people kind of tell you to slow down, because most people under-shoot pretty significantly. There's all kinds of better marketers than me that can tell you the details, but a lot of people take seven or 10 nudges before they'll make a purchase. Things like that and especially when you talk about an investment where it's a slightly different type of purchase than people are used to making, you really do need to hit it a lot. So I would definitely have multiple launch emails ready to go. So hey, we've launched this, hey, reminder, come check us out. And then usually some other call to action like can you please read this and we'll know what you think. We want to know what questions we haven't answered. On our page, you're asking people to be interactive with you and participate is very, very useful. There's a whole kinds of psychological tricks about just getting someone to say oh, you know, the class example is like should our next product be green or red? And a little poll you can do these on LinkedIn too. Like, and people just participating, saying I vote for red, will make them feel more connected to you and feel like they're more invested in your campaign, and then they're more likely to want to participate in the future. So definitely around launch.
Rob Burnett:
Then you want to pick out some milestones around how much has been raised. Those are great milestones to hit and you can always also do a number of investors. Join the hundred other investors who've invested in us. Those are great milestones as well. And then certainly be ready, whether preplanned or spontaneously, to announce any traction in the business. We've got a new customer, we launched a new product, we're in a new market. Those are really good things. You know the companies that are most active and showing no listen. Yeah, we're raising money but in the meantime we're building the heck out of this business and we're signing up clients and we're driving revenue and we're in new markets and, hey, you can buy us in this new store. All that stuff is very, very powerful. It shows the social proof of it all.
Rob Burnett:
And then, certainly, around closing, you know one thing I've shared in the past and I can send it around, but I've got a couple of different charts of some multimillion dollar raises on the capital and there's a couple things that those charts show. One is that there's always plateaus. So there's spikes where there's a lot of activity, whether that's around an email campaign or an event or things like that and then there's always plateaus where either things really level off or they go flat for a while. Be ready for those plateaus and maybe have some emails kind of stuck in the back pocket or some email campaigns to try and break through plateaus. And then most of the fun, a lot of what you're going to be doing throughout your campaign is building interest, building interest, building interest, getting people to opt in to smaller, more targeted lists, things like that, or getting people to just follow you for the very first time and then you want to make those last two to three weeks of a campaign. You really want to hit people hard, then that's where you want to go all out and really not worry about spamming. Hey, three weeks to go, 21 days to go, 20 days to go, 19 days to go, because a lot of people will watch, watch, watch, watch, watch and then they'll only pull the trigger when they're at the absolute last minute, and so having a really solid closing campaign ready to go and in the can can be really helpful.
Rob Burnett:
Two other quick bits of advice. One is I'm a really big fan of using email marketing, and even more so any kind of social media marketing, because email tends to be a little bit more personal People tend to. The conversion is a little bit better, because if someone's opted into your email list, they're typically somewhat paying attention to who you are. Social media is much lower barrier to entry, much easier to connect, follow, like things like that. If you use those channels and those mediums as the top of a funnel and create an intermediate step between the email or the social media post, between that and your net capital campaign.
Rob Burnett:
What I really like is live webinars where you invite investors to come hear more about your business, the investment opportunity to ask questions, and then you can invite them to invest after that. If you use something like Zoom, you'll have people signed up, you'll have their emails again and you can hit them with very targeted like thanks for coming to our talk here. Would you please invest? That tends to be very powerful People who sit through an hour of you talking and pitching or have high tendency to invest. And also, final thing, I'm throwing a lot at everybody.
Rob Burnett:
Hopefully it's useful, but I presume most of you are founders or on executive teams things like that In the nicest way possible. Most of you are not as good at pitching your business as you think you are. We all live our businesses every day. We think we're great at it, we think we know it and got it nailed. We typically don't. We're typically too close to it, and so if you have a weekly webinar where you're pitching to investors, I promise you you will get better. And as long as you take feedback and really think critically about yourself and your pitch, you will get better. Over the course of a couple months you will get way better at pitching and there's no substitute for a kind of live practice. So there's a double benefit of hosting kind of weekly pitch webinars is one you actually get people to hear your pitch and two you get better at the pitch itself.
Kathy Kraysler:
Wow, that was a lot of information to process and, I'm sure, very helpful to everyone, but let me move on. Our next question is about shares and pricing. This founder isn't sure how many shares of her company to sell and how the number of shares will affect her company's valuation, and she needs advice.
Rob Burnett:
So your valuation of your company is essentially the number of shares outstanding multiplied by the share price. And so as you all put together your offerings, you're gonna want to think about a couple of different things to make the offering attractive. First and foremost, we found that dollar share prices, or their abouts, tend to be pretty attractive. At least they are not, they don't turn into be off. We've had some companies try to do kind of 10 and $40 a hundred dollar share prices and even though you know, you can know objectively that a hundred it doesn't, share price doesn't actually matter. It's only shares price times, number of shares outstanding that matter. People don't like high share prices. It Makes it hard to buy. So I recommend keeping share price around a dollar essentially. And then you're gonna want to make sure that you have enough shares in your company, so a lot.
Rob Burnett:
If some of you might be solo founders Running your business yourself, you know you might have one share in your company and that's it. And you know I've seen that in the past and that makes perfect sense. When you're just, you own the company and that's it. But as soon as you want to sell Sell shares to the public via a net capital offering, you've got to Be aware of how many shares you own versus how many shares you're selling. So let's say you need to raise a hundred thousand dollars. At our dollar share price, that would be a hundred thousand shares.
Rob Burnett:
So if you only owned one share and you sold a hundred thousand, you don't, you know, one, one hundred thousandth of the company, and so it's important for everybody to take into account how many shares they currently have.
Rob Burnett:
They might, you might need to do what's called a stock split to Take, you know, sometimes if you have one share or ten shares, a thousand shares, you might need to split those into multiple shares so that everyone who's currently owned shares in the company owns enough of them to create an appropriate share price. And also for anybody here, you know, free your net capital campaign is a great time to put in place any employees stock option plans, grant any shares to founders or co-founders or early employees that you want to do. That kind of. Now is the time, because it's before you, you know, sold shares in the market, which presumably puts a value on them, and so getting some of those things out of the way ahead of time can be, can be a very it's, you know kind of annoying and corporate and very can be tedious, but this is the time to kind of do some of that corporate hygiene.
Kathy Kraysler:
Mm-hmm. So how does the number of shares affect your voting power? Are they correlated?
Rob Burnett:
Yeah, that is a good point. So so there is a difference between number of shares, I think, like kind of the shares which are an economic interest in the company, and the voting power which you know you might have. You know you might own half the company but have all of the voting power, things like that.
Kathy Kraysler:
So so let's switch gears for a minute. The question came up whether you're allowed to invest any of your retirement funds into an equity crowdfunding campaign.
Rob Burnett:
That's a great question. So these short answers yes. The slightly longer answer is it's going to depend on the account. So what we've seen a lot of is self-directed IRAs can be used in these types of investments as long as the IRA custodian allows for it. Some won't let you put money in this type of risky investment, but there are quite a few that will, and so what you can do and we've got a whole investor support team that can help any investor with this but basically under your personal account, on that capital, you can create a sub-account that's an entity and they can be your self-directed IRA and then you can make the investment via that entity. So that's totally doable. 401ks my guess is probably not, but that's a bit of a guess, an educated guess based on what I know so far. But yeah, self-directed IRAs and things like that are able to make some of these investments.
Rob Burnett:
One thing I want to circle back to about emails and email campaigns.
Rob Burnett:
I've preached about this in the past, but I'll re-preach about it.
Rob Burnett:
So, as all of you may or may not be aware, kind of the AI revolution is happening, kind of as we speak, and for anyone who's maybe not you know that doesn't have a deep background in marketing or hasn't done it before, or for any of you companies, or if your company is where this is kind of the first time you'll be doing mass marketing, I highly recommend trying out basically chat GPT to help you create a first draft of an email campaign.
Rob Burnett:
We can help you with prompts, which seem to be the key to these things now, but essentially, with the right prompt, you can have chat GPT, create you a full kind of email schedule and 10 emails based on your company kind of based on an equity crowdfunding campaign that optimized for conversion, and so they're definitely not ready for prime time. You have to review each one and make edits and then put it into your own email provider, but it's a heck of a way to get a first draft in, and so I highly recommend. If anyone feels stuck and doesn't know where to start, that's a really great place to start, because then you could just have to edit, which everyone knows is easier than trying to create from scratch.
Kathy Kraysler:
You know, that's actually a really good point and in fact I've been using chat GPT to help me brainstorm titles for these podcasts, although ultimately I always end up rewriting it myself. But moving on, we have a question from an issuer who's doing an equity crowdfunding raise and he says he sometimes gets email from potential investors and wants to know if he's prohibited from having one on one communications with them. Good question.
Rob Burnett:
Yeah, it's a really good question. So for everybody here, right, the general idea behind right CF equity crowdfunding is that you want investors to have the same basic information. That being said, you know there's no prohibition against you having one on one conversations with investors and, you know, letting them go into more detail as long as there's not some fundamental secret that you're sharing with them that you're not sharing with everybody else. You know, letting someone chat with you about the business and ask questions and poke around, that's totally fine and so I actually highly recommend. It can be time consuming, but putting a Calendly link in or some other kind of automated calendar software into your emails and saying, hey, I'd love to chat with you, sign up for 15 minutes with me or half an hour with me or, if you're feeling really generous, an hour with me, that's a really powerful way to close investors. Right, get them on your calendar, chat with them, let them ask all the questions they're going to ask Because, again, similar to what I said earlier, you're going to have a.
Rob Burnett:
It's another opportunity to pitch, which is good. You should get as many reps on that as you possibly can. Basically, as an entrepreneur, you should pitch to as many people as you as humanly possible and you're going to learn. For any company that does any significant volume of pitching, you'll learn that there's going to be like three to five questions that everybody asks and then, once you kind of narrow it in, where, like, you figure out where everyone's going to ask the questions. One is you can create great answers to those questions. And then, two, what you can do is either build the answers to those questions into your pitch so you anticipate it, or what I like to do is just keep those in your back pocket so when, inevitably, someone asks a question you know they're going to ask, you have a rock solid, airtight answer that makes you really look like you're on top of it. So you can do it either way. But yeah, if people want to talk to you and want to learn more, engage with them is the is the short answer.
Kathy Kraysler:
Thanks so much, rob. That's all we have time for this week, but if anyone has any questions that didn't get answered, or if you'd like us to answer a question of yours on this podcast, feel free to write to us at team at netcapitalcom. Thanks again, we'll see you next time.