The small business owners who choose to use equity crowdfunding to expand operations, fund purchase orders, cover market expansion related to sales and marketing, or acquire additional capitalization to take advantage of other opportunities runs the gamut. From breweries and restaurants to product and service offerings including medical devices, moving companies, bed and breakfasts, and fundraising organizations all have seen value in exploring alternative financing through equity crowdfunding in addition to or in lieu of traditional banks, loans, or lines of credit.
The consistency is that these small business owners or “issuers” of crowdfunding offerings understand the potential in not only tapping into accredited investors – the rich folks that typically invest as angels or through venture funds – but also the non-accredited or everyday investors that through the NC Paces Act have the ability to invest up to $5,000 per offering, per year.
Doing some quick math, in North Carolina, there are over 1 million households with an annual income of $75,000 - $200,000. If just 5% of those households invested $5,000 it would equate to a pool of additional investment dollars totaling roughly $254,000,000. That’s new money - outside of the traditional pool of investment dollars still available from the accredited crowd. Thank you NC Paces Act.
But who are these investors?
They are North Carolina residents who are looking for interesting opportunities that could not only produce a significant return on their investment but also allow them to support local, small businesses to which they feel connected in some way. We categorize them as follows:
Existing Supporters are an issuer’s low hanging fruit. These are the customers, vendors, supply chain partners, and advocates of a given business (or its leadership) that already know what it’s all about and see value in its offering. A significant percentage of this crowd might love an opportunity to invest in a company they know because they already believe in the business.
Affinity Investors love to support small businesses that personally and categorically mean something to them. These investors like to support minority-, woman-, or veteran-owned businesses or go after investment opportunities that are industry specific based on categories of business they understand. These could include microbreweries, small-scale technology companies, or agricultural interests.
Community Lovers support businesses that are geographically specific to them. This could mean they focus on rural or other underserved areas of the State but many times like to invest in hyper-local companies that operate within their specific communities. Instead donating to support a small business, they see value in participating in light raises that not only allow them to lend a hand but also potentially see a nice return.
Regardless of which types of investors make up an issuer’s crowd, it’s key to connect with as many potential investors as possible because a successful raise could very easily – and probably should – tap into all four of these groups.
For issuers, this requires a thoughtful communications strategy and planning in conjunction with the development of their NCE filing. For investors, it means keeping a close eye on the companies bringing their equity crowdfunding offerings to market.
Together, these two entities have the ability to fundamentally change the face of how businesses capitalize themselves in new ways throughout North Carolina.