How not to run a community round
If you're running a community round, here are 10 things to avoid doing.
I’ve been seeing more and more examples recently of bad community rounds. Or you might say bad “equity crowdfunding campaigns” – because usually for the bad ones, that nomenclature is more fitting.
Good community rounds look like Mercury (over-subscribed $5M from thousands of their customers in 24 hours as an extension to their $120M Series B); Replit (over-subscribed $5M from thousands of their customers in 24 hours as an extension to their $80M Series B); Beehiiv (over-subscribed $1M from hundreds of their customers in 3 hours as an extension to their $32M Series B), etc. etc. Or they can also look like Harlan County Brewery (raised $200K from hundreds of local community members and customers, as a revenue share loan), or Chattanooga FC (a soccer club that raised $800K from thousands of their fans). Some of my other favorite examples here.
I won’t publicly name and shame any bad ones. But if you’re spending $500K on ads to raise $1M in capital, I’m looking at you.
That’s the fork in the road for this industry.
One fork is bad companies pitching inflated valuations to retail investors via increasingly spammy digital ads with ever-diminishing returns.
The fork Wefunder espouses is community-oriented founders giving their customers and community the opportunity to invest, often alongside institutional investors, to delight their customers, build stronger community, and because they see it as the right thing to do.
But there are other ways to screw up a community round too. You might have the right intentions, but just botch the execution.
This blog articulates 10 mistakes to avoid. We’ve seen them all at Wefunder, so if you’re a founder launching a community round, hopefully you don’t have to replicate them!
I could have written 1,000. But time is finite. And so is your attention span. So 10 it is.
This blog is geared towards the Wefunder “founder journey” and “product” (e.g. company profile), because that’s the one I know.
In summary, the 10 mistakes to avoid making, when running your community round
Don’t raise money at the wrong time.
Don’t set the wrong investment terms.
Don’t screw up your profile.
Don’t be overly aggressive with your marketing / pitching.
Don’t treat (potential) investors like they are stupid.
Don’t launch publicly too soon.
Don’t start with mass marketing.
Don’t just spend tons of money on ads.
Don’t under-invest.
Don’t use any other platform than Wefunder :)
1. Don’t raise money at the wrong time
A lot of these could probably apply to “conventional” fundraising as well. And it’s obviously key to execute on your fundraise at the right time. Too early (e.g. before you’ve actually done anything, or got any traction), and it will be really hard to persuade investors to invest in you. So you’ll waste tons of your time trying to connect with, and pitch investors, who won’t invest. That time would have been much better spent building (or distributing and selling) your product.
Conversely, I’ve seen founders leave it “too late” to fundraise. The shorter your runway, the more risky you are to investors. The most tragic example of this – a story I have now seen multiple times:
Founder to VC (in January, founder has 15 months of runway): “I’m thinking of letting my customers and community invest!”
VC to Founder: “You shouldn’t do that. It’s a negative signal to let your customers invest.”
Founder to VC: “OK. Will you invest?”
VC to Founder (in March): “Maybe.”
Founder to VC (in May): “Want to invest now?”
VC to Founder (in July): “Maybe.”
Founder to VC (in October, runway now 6 months): “Umm. How about now?”
VC to Founder (in December): [ghosts]
Founder to Jonny (in January): “We’re looking to launch a community round on Wefunder!”
Jonny to Founder: “Cool! How much runway do you have?”
Founder to Jonny (slightly sheepishly): “Umm. 3 months.”
As with all fundraising, the best time to raise is when you’re growing super quickly, and you need capital to manage the growth.
2. Don’t set the wrong investment terms
The best way to think about this is “if Wefunder didn’t exist, what investment terms would I be raising on?”
I see a lot of Common Stock raises on other platforms. But (as Naval Ravikant said here), “You’d be a fool to do a seed round buying common stock”. “Sophisticated” investors (VCs and Angels) expect and demand Preferred Stock. So you should offer that to your customers and community too.
But if you were raising from angels or VCs and you would do a SAFE, then do a SAFE on Wefunder. Or a Convertible Note. Or a Waterfall Agreement if you’re a movie. Or a loan if you’re a brick and mortar restaurant, etc.
And this applies to valuation as well.
It’s imperative to run the investment terms by experienced investors (and founders) before launching on Wefunder – to validate that the terms are in the right ballpark, and that there will be investor demand.
(Although slight caveat here – there are obviously some very bad investors / advisors out there. Especially if you’re a founder in a small town, and the local startup investors, who are the “only game in town” are predatory, or Kevin O’Leary, you can end up selling yourself massively short).
If you’re doing an equity raise, Wefunder rolls up the individual investors to one line on your cap table using an SPV, which is another component of the investment structure to make sure you get right out of the gate.
3. Don’t screw up your profile
Your Wefunder profile is critical. Some startups fundraising on Wefunder get hundreds of thousands of visitors to their Wefunder profile page. That’s not only potential investors for you to convert or not convert, but it’s also a ton of brand impressions for your startup.
Be polished. Be perfect.
Be obsessive about nailing your tagline. This has to stand out on a crowded Explore page and in a crowded weekly email newsletter. And it has to immediately communicate to the reader What You Do. I see so many vague taglines, or overly salesy taglines. To me, that’s offputting. It’s too try-hard (a recurring theme).
Wefunder’s tagline is “Angel Investing for Everyone”. I think a bad tagline would be “YC-backed alternative investing platform tackling the $55B market.” There are a number of highlights below (or the company name above) where you can tell investors that you are backed by Y Combinator, or that your TAM is $55B. And “alternative investing platform” is super high cognitive load, and ambiguous.
Be super crisp and punchy, and super specific.
A little further down the profile, the photo is the next thing to nail. We recommend avoiding distracting words, logos, your company name, collages. Don’t overload the poor (potential) investor. Keep the design clean. And have the photo clearly communicate what you do (and ideally appeal to the investor on an emotional level as well). Check out Detroit City FC for one of my favorites:
The video is not as indispensable as people usually think. For example, Mercury raised $5M in 24 hours without a video. But it is an opportunity to “talk to” potential investors. It’s the one chance for many investors to “meet” the founder(s). When angel investors (or VCs) invest in a startup, they get to meet the founder, usually in person, often for hours and hours. Founders don’t have the same opportunity to deeply connect, over an extended period of time, with most of their Wefunder investors. A video can help bridge that gap. (As can a webinar or two during the raise).
We highly recommend having the founder speaking into the camera for at least part of the video. Investors are investing in the founder, as well as the company.
The worst videos I see seem inauthentic, overly marketingy. As the founder, you definitely have a sexier voice than the voice actor you’re considering having read the script. Unless the voice actor is Antonio Banderas. If you can get Antonio Banderas to read your video script, and you’re a tequila brand, maybe go with Antonio.
Highlights should be specific, not vague. Saying “Founders have significant experience at large tech companies” is massively less powerful than saying “Founders were Senior Engineers at Facebook for 7 years”. There’s no one-size-fits-all formula here. E.g. you’re not obliged to put “Revenue” as your first highlight bullet, and “TAM” as your second.
As with all fundraising, emphasize your particular strengths. If you’re X AI, just put “I am Elon Musk” as the first bullet point. If you’re OpenAI, put “We reached 100 million users in 12 nanoseconds” (or whatever it was). Actually, come to think of it, if you’re OpenAI, you might consider putting “I am Sam Altman” for your first highlight bullet as well.
Capital Department are one of Wefunder’s valued strategic partners, and world class when it comes to building out the profile pages of their clients. Check out Plunge and Pirouette for a couple of recent examples. And their work pays for itself. 80% of the capital that Pirouette raised on Wefunder came from existing Wefunder investors. This is significantly higher than the average company on Wefunder, and I put that down overwhelmingly to the great work that the Capital Department team did in building out the Pirouette Wefunder profile.
4. Don’t be overly aggressive with your marketing / pitching
My colleague Katie tested the invest flow on another platform last week. She said she then got spammed with endless emails, and even called up multiple times.
This is a bad look. It reeks of desperation. Especially to the investors you most want.
There’s definitely a balance to strike here. You don’t want to leave money on the table. But it’s like any marketing efforts – sending more emails will always drive some additional (although diminishing-return) results. But you will increasingly annoy your audience, tarnish your brand / reputation, and burn your lists.
As well as the cadence of communication, you should also ensure that the content of your communication is not overly aggressive. Optimism is good. Confidence is good. Articulation of the vision and your plans is good. But guarantees of gargantuan financial returns are not where it’s at (not least because they’re not legal).
At the end of the day, you want people to invest only if they clearly understand that investing in startups is risky (and usually illiquid).
5. Don’t treat (potential) investors like they are stupid
This is an actual chart from a live Reg CF offering.
The left hand bar shows revenue from 2019. The right hand bar shows revenue from 2020 to 2023 combined.
I have never before seen a chart like this in my life.
If you look at the Form C, you will see that revenue declined by 67%, from $24.9M in 2022 to $8.2M in 2023.
But the callout on the chart says “32,481% growth”.
Don’t do that.
Maybe some people would see that chart and be convinced(?) to invest.
But a lot of investors (I would hope more investors, and I would certainly bet larger investors) would be massively deterred from investing by that chart.
6. Don’t launch publicly too soon
As the old saying goes, you get one chance to make a first impression.
I see too many founders announcing their community round on social media – before they’ve raised enough from their own personal network, or private outreach.
On Wefunder, we have a nice UI to help with this.
I like the “Exclusive” or “Friends Invest First” language, with the countdown clock ticking down the seconds until public launch. During this private phase, the amount you’ve raised is hidden, which is what you want.
This private phase can often align with “Early Bird Terms” – where founders offer a discounted valuation to the first investors into the round.
Founders often ask me “what is a good amount to raise in private, before launching in public?” There’s no magic formula here – and honestly, the more the better at the end of the day – but a good rule of thumb is one third of the round. So if you’re trying to raise $1M on Wefunder, ideally you don’t go public until you’ve raised $300K in private.
But you have to hustle during this private phase. Don’t let it drag on, or fail to dedicate sufficient time to investor outreach. Prioritize it, massively.
To be explicit, if I was launching a community round on Wefunder, before launching in private, I would make a spreadsheet with 500 names on it. And then on Day One of my private launch, I would personally reach out to everyone on that spreadsheet. I would expect half of them to invest, and the average investment amount on Wefunder is $1K, so that’s $250K raised on Day One. A good start.
The other thing to do in the private phase (and even before that) is to plan.
What marketing activities will you execute on during both the private and the public phase of the raise?
And what targets do you have? (e.g. number of investors to reach out to personally, target pageviews, investments and dollars by week, etc.).
Don’t drift. As with conventional fundraising, rapid execution is key, and can help to build momentum around the raise.
7. Don’t start with mass marketing
Related to the last point, don’t resort to “mass marketing” too soon. Social media posts are great. Email blasts (e.g. to your customers) are great. But they are much better used as accelerant fuel to a fire that’s already burning, rather than kindling.
There are exceptions here (e.g. Substack just sent an email and raised $5M in 24 hours). But generally, founders should focus initially on priming the pump from their personal network in private, before pushing it out more broadly in public.
Or to put it more bluntly, if you email your 50K customers when your campaign has $0 raised, 200 of them will invest an average of $500 each for $100K raised. Whereas if you email your 50K customers when your campaign has raised $500K raised, 1,000 of them will invest an average of $1,000 each for $1M raised.
Retail investors, like institutional investors, are herd animals.
8. Don’t just spend tons of money on ads
Occasionally, ad spending can make sense when running a community round. For example, let’s say you sell expensive whiskey, and your customer LifeTime Value (LTV) is $500. A typical Return On Ad Spend (ROAS) on Facebook / Instagram Ads (the best ads channel we have found by a distance) directed at your Wefunder page might be 5:1. That is, if you spend $20,000 on ads, you might expect that to drive $100,000 in investment volume. The average investor invests $1,000 on Wefunder, so that $20,000 in ad spend might result in 100 investors, investing $1,000 each. And now let’s assume that 50% of those 100 investors convert to become your customers. Your LTV is $500, and you just acquired 50 new customers (50% of the 100 investors), so that’s $25,000 in revenue from the $20,000 in ad spend, as well as the $100,000 in investment volume. Plus, these 50 customer-investors will probably be more loyal than your average customer, and have a higher LTV, so the revenue you realize from them might end up being greater than $25,000.
The other use case for ad spend is where the ROAS is extremely high. For example, if you’re advertising to a very niche audience with a very strong investment opportunity, and you can generate a ROAS of 10:1 or greater, the economics ca work, and paid ad spend can become a relatively efficient channel for driving incremental investment volume, and building traction and momentum around your raise. Generally, as with all marketing, the ROAS will increase, the more targeted and thoughtful the deployment of your paid marketing spend.
So spending money on ads to raise capital through Regulation Crowdfunding can work in some situations.
But more often than not, it becomes a very expensive way to raise capital. The worst “equity crowdfunding” raises I see have a lower ROAS than the 5:1 cited above. And while the maximum fee founders will pay to Wefunder is 7.9% of the amount raised, on other platforms that can get as high as 20%, when all the additional fixed, variable and hidden fees are added on. So then you have a massive amount of the capital you just raised immediately going out the door on ad spend and platform fees. (Actually it never comes in the door in the first place). Not a smart way to raise capital, or grow your company.
9. Don’t under-invest
Again, there are exceptions where more established companies with large audiences can raise millions of dollars from thousands of fans very quickly and easily on Wefunder. But generally, with community rounds as with conventional fundraising, raising capital is hard work, and takes a lot of the founder’s time, energy and effort.
Even in a case like Substack or Levels, where the community round is explosive, it’s still worth ensuring that the Wefunder profile, and the marketing and communications plan, are exceptional. You’re inviting thousands of your most passionate supporters to invest in you. That has the potential to be the most incredible marketing / branding / community building campaign you ever run. So it’s worth flawlessly nailing the execution.
And for the majority of founders that won’t raise $1 million in 24 hours by sending an email blast, even more important to commit the requisite time to make your community round a success.
To be explicit, the biggest mistake I see founders make is not committing enough of their time to their community round.
Or to say this another way, founders ask me all the time “how much do you think we will raise?” My answer is always “it depends”. And one of the biggest factors it depends on is how much of the founder’s time they will invest in the raise. To put it in an extreme way, let’s say there’s a founder who wants to raise $500K in a month on Wefunder. If they invest 20 hours of their time over the course of that month, they might only raise $150K. Whereas if they invest 80 hours of their time, they might be able to raise $600K.
On one hand, you might expect a law of diminishing returns on a founder’s time. For example, in the example above, you would hope that our founder would spend their first 20 hours executing on the fundraising activities that have the highest ROI on their time. But I would guess that there’s less of a diminishing return on their time than you might expect. Because fundraising is a lot about momentum. And so if the founder is investing more time to make the fundraise successful, that will drive more energy and momentum around the raise, which will compound.
A super important note here – you can reduce the amount of effort it will take to be successful in your community round by lowering your target raise amount.
In the example above, if the founder would have been happy with $150K raised as a small community allocation as part of a larger round, then investing 20 hours of their time, and raising $150K in a month, would have been a fine outcome.
At Wefunder, we generally recommend sending a “Testing The Waters” survey to your email list / audience before launching your community round (or even before deciding whether to do a community round). This survey can help you gauge likely investor demand from your audience. And then you can align your target raise amount with this organic investor interest.
If a company has $250K of likely investor demand from their existing audience, and they set a target fundraising goal of $250K, then it should end up being a lot less time and effort for their founder, than if they set their fundraising goal at $5 million.
A critical component of “Don’t under-commit” is “Set a goal that’s realistic and achievable, given the amount of resources that you are willing and able to invest in the raise”.
10. Don’t use any other platform than Wefunder :)
I mean come on, we have Tycoon.
As the length of this blog post painfully demonstrates, at Wefunder, we’re extremely passionate about startups allowing their customers and community to invest in them, alongside institutional investors.
If you’re considering running a community round, and you want to chat more with someone on our team about the pros and cons, and do’s and don’ts, shoot us an email at launch@wefunder.com.
