Fintech
4 things to consider if you want to raise startup funds from retail investors
From Mila Khrapchenko
Despite some revitalization of the investment landscape in the first quarter of 2024, securing investments, especially in the very early stages, remains a challenge.
That said, there is a growing category of investors that is not yet considered by many founders as a potential source of funding: retail investors.
By this I mean unaccredited investors who face many restrictions when investing in startups but are often willing to fund projects they find interesting.
However, attracting money from retail investors has its own peculiarities.
Competing with public markets
First, retail investors have many opportunities in the public market, which is not always an advantage for founders.
Fintech advancement has expanded opportunities for investors. Furthermore, the rise of robo-advice and analytics platforms provide them with ongoing advice on where to invest, how to invest and why.
The challenge? Retail investors today have an abundance of information that creates overload and confusion, making it difficult to identify valuable opportunities. As a founder, the probability that they will choose your startup is not very high, so you will have to be very convincing for them to choose you
Limited tools
Second, if retail investors choose to invest in startups, the tools to do so are still limited.
Investment platforms for example Republic AND Wefunder or crowdfunding platforms such as Kickstarter OR Indiegogo they are well known and generally the first and most popular option.
However, savvy investors know that these house the highest risk investment categories and rarely feature more mature companies. Venture capital funds represent another alternative, although, for now, they only exist as a legal vehicle In the UK.
Additionally, a relatively new option is tokenization. While many retail investors, as well as founders, may not be familiar with it, tokenization remains valid significant potential, as retail investors’ investments in digital assets are not particularly limited. Therefore you can digitize your company’s shares using a blockchain protocol and offer them as tokens.
Regulatory and other limitations abound
Attracting retail investors to a private company has its limits.
The legislation usually protects retail investors from risky investments such as startups. While developed markets such as the US, Europe and Israel are moving towards expanding opportunities, a radical change in restrictions is not expected in the near future.
The second limitation is the size of the check. Under current law, you cannot raise more than 5 million dollars OR EUR through a crowdfunding platform. If you have a late-stage or capital-intensive startup, this is not a suitable option.
Retail investors are looking for a narrative
Venture capitalists are emphasizing numbers more than ever, as well as requiring a minimum viable product, a refined business model, a low burn rate and good traction.
In contrast, retail investors often pay attention to a compelling story.
Therefore, be ready to appeal not only to their minds but also to their hearts and, above all, to diversify your agenda: people are different and will make decisions based on their values.
This is particularly relevant for Generation Z, which is gradually becoming an active part of the business community. So work on the image and emotional appeal of your company.
Final thoughts
In a challenging venture capital landscape, retail investors offer a potential pool of untapped capital, and tapping it could transform the way startups raise money.
However, special attention should be paid to all the peculiarities of the retail segment. Unlike conventional VCs or angels – who invest in startups as a profession – retail investors have other factors that influence their decision-making.
Furthermore, expectations must be reasonable. It is almost impossible for an individual retail investor to match a VC’s check. By understanding its characteristics, you can increase your fundraising prospects.
Mila Khrapchenko is the co-founder and co-CEO of Ameetee, a fintech startup that provides a B2B solution for investing in private companies through securities. She is an investment professional with over 20 years of experience, manages a portfolio of approximately $2 billion and is an angel investor involved in more than 30 transactions.
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