equity crowdfunding

Equity Crowdfunding is the Ultimate Customer Loyalty Program

Alex Tynion from SeedInvest and I sat down recently to talk through some of the things that we’ve learned from helping the first few companies who have “tested the waters” under the new Reg A equity crowdfunding rules. Regulation A is an equity crowdfunding rule that allows private companies to raise money from the general public. So far, we have helped three companies on SeedInvest to reach over $10M in indicated interest from over 2,000 people each.

There are some common mindsets and practices that we’ve seen across the companies that have been most successful with equity crowdfunding.

Equity Crowdfunding Deepens Your Customer Relationships

Alexandra Tynion: What does undertaking a Regulation A offering mean for a company’s relationship with their customers?

Peter Thomson: Reg A+ and the whole process of raising capital online is really interesting. The most exciting thing about equity crowdfunding is the ability for a company to turn their customers into investors.

Companies that are customer-centered and really care about their users seem to love the idea of deepening their relationship with their customers by allowing them to invest.

Owning shares in a business is an extreme form of customer loyalty program. The customer actually has a vested interest in the brand’s success.

Companies that put a high priority on building long-term customer relationships, and a high priority on word-of-mouth, want to build long-term customer relationships. Allowing their customers to become investors deepens the customer’s relationship with the brand.

Customer-Centered Businesses Are Better At Equity Crowdfunding

Alex Tynion: What do you look for in a company that will succeed with this type of capital raising?

Peter Thomson: For Regulation A, SeedInvest looks for companies that have a large customer base, a straightforward consumer-facing business model, and an easy to understand technology base. There also a number of other due diligence type things that we look for in a company that will do well with this type of capital raising, but the most important thing that I personally look for is companies that are customer-centered, and in particular companies that have built strong word-of-mouth engagement.

Support, customer service and community management are often under-appreciated parts of a business. But they are trace indicators of a company that cares about their customers and cares about building customer loyalty, repeat business and good word-of-mouth.

If you have good word-of-mouth, then it means that people are talking about your company, it means that they like your products, and that they like your products enough to tell other people about them. In turn, that probably means that some of those customers like your company enough to actually want to own a part of it.

When your customers love your product and the service you provide, then they may want to own a part of what you are building, to share in your success, and to invest their own money into being part of it.

Products That People Use Every Day Have High Customer Engagement

Alex Tynion: What types of products and services suit Regulation A capital raising?

Peter Thomson: I think that this type of capital raising tends to suit companies where users are highly engaged with the product itself. If it’s something that you use every day, then you’re more likely to have a relationship with the product and to feel like you have a relationship with the company.

Products that you use every day and have a close relationship with include clothing, habit-forming mobile applications and food. Products that go in or on your body, or that you’re in constant physical contact with, are very intimate. Those are very personal things, things that you wear, things that you carry with you every day. Those tend to be the sorts of products and brands that you feel strongly about.

Think of someone’s wristwatch, it’s a key part of their identity. And for some, a key part of how they communicate their identity to other people. Likewise someone’s phone is in constant use every day.

Every day products are the sorts of brands that we tend to form deep and long-term relationships with based on our daily habits. I think those can make for very strong brand relationships.

Companies that really care about nurturing these types of everyday product relationships can build fanatically loyal customer bases. Those are the sorts of companies that I think will do very well in raising money online from their customers.

This is an excerpt from a conversation that first appeared on the SeedInvest Voices blog on the Medium Platform. The original article is called How To Promote A Regulation A Campaign.