The last decade and a half has been a golden age for the hi-tech industry. From the iPhone, social media and Netflix to cloud computing, online shopping and blockchain, the industry is constantly in a cycle of disruption and innovation. The tech industry even played a major role in the global economic recovery following the great recession of 2008-09.
Last year startups raised a record $643 billion through global venture capital investment, but so far 2022 has been another story. Falling tech stocks, soaring inflation, a war in Eastern Europe and a plethora of other factors are straining the global economy, making fundraising even more challenging than usual. The old mantra in tech that market downturns wash away the weak startups holds weight, but it doesn’t mean the strong ones can survive without funding.
What other options do serious, yet cash-strapped startups have to raise funds in these harsh economic times?
Crowdfunding as a Substitute
When everything from big tech firms and small startups are laying off parts of their workforce, it means money is tight and small startups must get creative in order to stay afloat. As VCs’ wallets tighten, the need for startups to find alternative sources of funding is leading many to turn to crowdfund platforms.
There are three primary types of crowdfunding campaigns commonly used today. Rewards-based campaigns raise capital and then reward donors with a tangible gift, such as early access to the company product, without having to give up equity in the company. Donation-based essentially raises capital as a charity, typically to support a social initiative or business that has deep roots in a specific community and needs assistance to survive. The third type, and one most relevant for startups, is equity-based.
Equity crowdfunding is the logical choice for startups affected by the slumping market because it attracts investors seeking out disruptive products and projects. It also most closely resembles the process of courting VCs because it requires a strong business pitch to sell the investor on the idea or product.
The downside is there have been too many fraudulent projects and companies exploiting these platforms and not fulfilling the stated objectives and mission. This reputation makes investors reluctant to invest in a project that may sound revolutionary. Navigating the hype and deciphering between the real projects and the scams on many major crowdfunding platforms is a challenge because there is a serious lack of transparency.
Crowdfunding platforms owe their investors and donors transparency and in order to reclaim their credibility, these platforms must take measures to hold project owners accountable.
Building Accountability
Serious investors aren’t going to waste their time (and money) if there are inherent risks with the infrastructure supporting the funding process.
There are several methods and tools that platforms can leverage
Leverage
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage. Read this Term to enhance their transparency and credibility. One method that can enhance a platform’s credibility which in turn contributes to increased transparency is to release the funds in stages, upon completing pre-determined milestones. This means that if an AI startup raises $200,000 during its campaign, it may only unlock $75,000 initially to go towards the development of its primary algorithm. Once it has a beta version of the product ready, it could unleash another $50,000, for example, to go towards its marketing
Marketing
Marketing is defined as the business process of identifying, anticipating and satisfying customers’ needs and wants.This is a crucial element of any operation or brokerage in the financial services space. Well-funded marketing campaigns are instrumental to the survival and longevity of these companies in an increasingly competitive industry.Within the forex space, marketers perform a wide range of functions to help procure, secure, or retain clients.In particular, newer forex brokers also have to handle the acquisition of traders, retaining them for a longer period of time or distinguishing between brokerage and competitors.What Are the Most Common Marketing Strategies Used by FX Brokers?This process can take shape in a variety of forms. Advertising is the most commonly deployed technique for forex marketing.This includes a marketing plan that touches on digital and traditional advertising. Advertising can include banner ads, notifications, newsletters, or other mechanisms for drawing attention to any brand or brokerage.Blog posting or other forms of search engine optimization (SEO) are also effective marketing tools for forex brokers.Well-organized and attractive pieces of content on websites are very useful for users and clients and have proven to be successful marketing strategies.Such efforts also enable websites to be found by those looking for what a broker offers and those who are looking for some knowledge about the trading industry. This can also help generate traffic on landing pages, converting sales. Social media has also rapidly evolved as a critical element of marketing.Forex brokers rely on social media such as Twitter, Facebook, or Linkedin for marketing needs, capable of reaching a huge audience. Ultimately marketing requires efforts on part of brokers to bridge the gap with their desired audience. In this instance, this means potential clients or existing ones.
Marketing is defined as the business process of identifying, anticipating and satisfying customers’ needs and wants.This is a crucial element of any operation or brokerage in the financial services space. Well-funded marketing campaigns are instrumental to the survival and longevity of these companies in an increasingly competitive industry.Within the forex space, marketers perform a wide range of functions to help procure, secure, or retain clients.In particular, newer forex brokers also have to handle the acquisition of traders, retaining them for a longer period of time or distinguishing between brokerage and competitors.What Are the Most Common Marketing Strategies Used by FX Brokers?This process can take shape in a variety of forms. Advertising is the most commonly deployed technique for forex marketing.This includes a marketing plan that touches on digital and traditional advertising. Advertising can include banner ads, notifications, newsletters, or other mechanisms for drawing attention to any brand or brokerage.Blog posting or other forms of search engine optimization (SEO) are also effective marketing tools for forex brokers.Well-organized and attractive pieces of content on websites are very useful for users and clients and have proven to be successful marketing strategies.Such efforts also enable websites to be found by those looking for what a broker offers and those who are looking for some knowledge about the trading industry. This can also help generate traffic on landing pages, converting sales. Social media has also rapidly evolved as a critical element of marketing.Forex brokers rely on social media such as Twitter, Facebook, or Linkedin for marketing needs, capable of reaching a huge audience. Ultimately marketing requires efforts on part of brokers to bridge the gap with their desired audience. In this instance, this means potential clients or existing ones. Read this Term and go-to-market efforts. If the startup fails to reach the initial milestone, then the remaining funds can be returned to the investors.
AI is another tool that can be leveraged by crowdfunding to help protect investors from fraudulent projects. Through an AI algorithm, crowdfunding platforms can better vet projects by scanning for copyright infringements and other red flags that investors would have otherwise overlooked.
Crowdfunding, and specifically equity crowdfunding, can provide startups struggling to attract VC funding amid the brutal bear market the cash they need to further advance their product, solution or service. But, investors are likely to err on the side of caution when it comes to investing in a startup via crowdfunding. If crowdfunding platforms demonstrate that they can provide transparency and a safety net for investors to prevent them from being scammed, the industry can fill a major void in the hi-tech industry, and help many young, yet solid startups stay afloat and ready for the next bull market when the VC tap will be turned on again.
Claudiu Minea is the co-founder and CEO of SeedOn.
The last decade and a half has been a golden age for the hi-tech industry. From the iPhone, social media and Netflix to cloud computing, online shopping and blockchain, the industry is constantly in a cycle of disruption and innovation. The tech industry even played a major role in the global economic recovery following the great recession of 2008-09.
Last year startups raised a record $643 billion through global venture capital investment, but so far 2022 has been another story. Falling tech stocks, soaring inflation, a war in Eastern Europe and a plethora of other factors are straining the global economy, making fundraising even more challenging than usual. The old mantra in tech that market downturns wash away the weak startups holds weight, but it doesn’t mean the strong ones can survive without funding.
What other options do serious, yet cash-strapped startups have to raise funds in these harsh economic times?
Crowdfunding as a Substitute
When everything from big tech firms and small startups are laying off parts of their workforce, it means money is tight and small startups must get creative in order to stay afloat. As VCs’ wallets tighten, the need for startups to find alternative sources of funding is leading many to turn to crowdfund platforms.
There are three primary types of crowdfunding campaigns commonly used today. Rewards-based campaigns raise capital and then reward donors with a tangible gift, such as early access to the company product, without having to give up equity in the company. Donation-based essentially raises capital as a charity, typically to support a social initiative or business that has deep roots in a specific community and needs assistance to survive. The third type, and one most relevant for startups, is equity-based.
Equity crowdfunding is the logical choice for startups affected by the slumping market because it attracts investors seeking out disruptive products and projects. It also most closely resembles the process of courting VCs because it requires a strong business pitch to sell the investor on the idea or product.
The downside is there have been too many fraudulent projects and companies exploiting these platforms and not fulfilling the stated objectives and mission. This reputation makes investors reluctant to invest in a project that may sound revolutionary. Navigating the hype and deciphering between the real projects and the scams on many major crowdfunding platforms is a challenge because there is a serious lack of transparency.
Crowdfunding platforms owe their investors and donors transparency and in order to reclaim their credibility, these platforms must take measures to hold project owners accountable.
Building Accountability
Serious investors aren’t going to waste their time (and money) if there are inherent risks with the infrastructure supporting the funding process.
There are several methods and tools that platforms can leverage
Leverage
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage. Read this Term to enhance their transparency and credibility. One method that can enhance a platform’s credibility which in turn contributes to increased transparency is to release the funds in stages, upon completing pre-determined milestones. This means that if an AI startup raises $200,000 during its campaign, it may only unlock $75,000 initially to go towards the development of its primary algorithm. Once it has a beta version of the product ready, it could unleash another $50,000, for example, to go towards its marketing
Marketing
Marketing is defined as the business process of identifying, anticipating and satisfying customers’ needs and wants.This is a crucial element of any operation or brokerage in the financial services space. Well-funded marketing campaigns are instrumental to the survival and longevity of these companies in an increasingly competitive industry.Within the forex space, marketers perform a wide range of functions to help procure, secure, or retain clients.In particular, newer forex brokers also have to handle the acquisition of traders, retaining them for a longer period of time or distinguishing between brokerage and competitors.What Are the Most Common Marketing Strategies Used by FX Brokers?This process can take shape in a variety of forms. Advertising is the most commonly deployed technique for forex marketing.This includes a marketing plan that touches on digital and traditional advertising. Advertising can include banner ads, notifications, newsletters, or other mechanisms for drawing attention to any brand or brokerage.Blog posting or other forms of search engine optimization (SEO) are also effective marketing tools for forex brokers.Well-organized and attractive pieces of content on websites are very useful for users and clients and have proven to be successful marketing strategies.Such efforts also enable websites to be found by those looking for what a broker offers and those who are looking for some knowledge about the trading industry. This can also help generate traffic on landing pages, converting sales. Social media has also rapidly evolved as a critical element of marketing.Forex brokers rely on social media such as Twitter, Facebook, or Linkedin for marketing needs, capable of reaching a huge audience. Ultimately marketing requires efforts on part of brokers to bridge the gap with their desired audience. In this instance, this means potential clients or existing ones.
Marketing is defined as the business process of identifying, anticipating and satisfying customers’ needs and wants.This is a crucial element of any operation or brokerage in the financial services space. Well-funded marketing campaigns are instrumental to the survival and longevity of these companies in an increasingly competitive industry.Within the forex space, marketers perform a wide range of functions to help procure, secure, or retain clients.In particular, newer forex brokers also have to handle the acquisition of traders, retaining them for a longer period of time or distinguishing between brokerage and competitors.What Are the Most Common Marketing Strategies Used by FX Brokers?This process can take shape in a variety of forms. Advertising is the most commonly deployed technique for forex marketing.This includes a marketing plan that touches on digital and traditional advertising. Advertising can include banner ads, notifications, newsletters, or other mechanisms for drawing attention to any brand or brokerage.Blog posting or other forms of search engine optimization (SEO) are also effective marketing tools for forex brokers.Well-organized and attractive pieces of content on websites are very useful for users and clients and have proven to be successful marketing strategies.Such efforts also enable websites to be found by those looking for what a broker offers and those who are looking for some knowledge about the trading industry. This can also help generate traffic on landing pages, converting sales. Social media has also rapidly evolved as a critical element of marketing.Forex brokers rely on social media such as Twitter, Facebook, or Linkedin for marketing needs, capable of reaching a huge audience. Ultimately marketing requires efforts on part of brokers to bridge the gap with their desired audience. In this instance, this means potential clients or existing ones. Read this Term and go-to-market efforts. If the startup fails to reach the initial milestone, then the remaining funds can be returned to the investors.
AI is another tool that can be leveraged by crowdfunding to help protect investors from fraudulent projects. Through an AI algorithm, crowdfunding platforms can better vet projects by scanning for copyright infringements and other red flags that investors would have otherwise overlooked.
Crowdfunding, and specifically equity crowdfunding, can provide startups struggling to attract VC funding amid the brutal bear market the cash they need to further advance their product, solution or service. But, investors are likely to err on the side of caution when it comes to investing in a startup via crowdfunding. If crowdfunding platforms demonstrate that they can provide transparency and a safety net for investors to prevent them from being scammed, the industry can fill a major void in the hi-tech industry, and help many young, yet solid startups stay afloat and ready for the next bull market when the VC tap will be turned on again.
Claudiu Minea is the co-founder and CEO of SeedOn.
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