Thursday, February 21, 2013

Adding Strategic Internet Marketing to an Equity Crowdfunding ...

Editor's Note: The following comes to us from Thomas Vass, owner and manager of The Private Capital Market, a subscription-based crowdfunding website. Vass writes in to explain how the internet is changing communication and marketing, and looks at two ways for entrepreneurs and CEOs to market their equity crowdfunding raise. The first half of the article, in which Vass explains the web is changing marketing, is here, and the conclusion is below.

The SEO Affiliate Marketing Strategy For An Equity Crowdfunding Project

Affiliates are similar to members of a supply chain, or like intermediate producers in an industrial cluster, in the sense that their potential relationship is based on some common financial or economic interest. In many cases, the affiliates do not know of the potential relationship, or affiliation, and the goal of the marketing strategy is to ?reveal? the relationship by using code words or code language to alert the internet user.

The use of the term ?affiliates? in this economic relationship application is different than the commonly accepted usage by marketing professionals who use the term ?affiliate marketing.? In their usage, affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's own marketing efforts.

An affiliate crowdfunding marketing strategy is part of a Search Engine Optmization (SEO) marketing plan where a set of search phrases or keywords are targeted to specific web pages so that when a user searches for one of those phrases, that website will rank on the top of the search results page.

The CEO of the company uses the search phrases, or keywords, to help the user find the company website, and the company website is designed to invite the user to learn more, generally tucked away under the ?About Us? navigation button on the company website.

The internet behavior of affiliates can be modeled as having an individual welfare function, or utility function, that the user is trying to optimize by searching for information to make better decisions. The keywords used in the SEO strategy alerts the user to a possible new relationship. The marketing appeal is based upon the value of the information, not necessarily on the cost or price of the company?s product.

The user may not even want to buy the product, but wants to see if a potential relationship may exist to do business in the future.

The measurement of success of the SEO strategy for a crowdfunding project is based on the number of keywords that drive search traffic to the company website and the number of URL links on the internet that people click to visit the site.

The CEO is aware that a potential affiliate has two primary financial reasons to be interested in the company. Either the affiliate is interested in working with the company to get a product to the market, or the affiliate has some financial interest in getting a capital market deal done.

The SEO affiliate strategy involves a combination of traditional public relations and marketing, and the newer advertising techniques related to gaining a higher ranking for the company website on search engines like Google.

The diagram below describes how a marketing strategy to reach these two types of affiliate markets would work.

Diagram 1. The Crowdfunding SEO Affiliate Marketing Strategy. ? 2013. The Private Capital Market, Inc. All rights reserved.

After the potential affiliate has landed on the company Investor Relations page, the page content must be optimized so that the user can determine the validity of the information, and verify that the company has potential as an affiliate. In other words, the user begins their investigation of the company by imagining how a relationship with the company ?fits? into the individual welfare function of the user.

Affinity Social Media Marketing For A Crowdfunding Project

Unlike the individual welfare function that describes behavior of an affiliate, the affinity internet user behavior is based upon a social welfare function. ?Affinity? means that the potential information exchange based relationship is based on common interests that are not obvious to the user.

The affinity user is searching on the internet to find resources that promotes the user?s image of the good society. Some internet resources that the affinity user finds ?fit? into the social welfare function, as if the improvement in social welfare is independent of the improvement of the user?s individual welfare function.

Because the two types of welfare functions are independent, in the mind of the user, the SEO marketing techniques used to attract affiliates would not necessarily be effective in attracting affinity users. This independence is also one reason why charity giving websites, like Kickstarter and Indiegogo, are successful. The contribution given on the charity websites are given to promote general social welfare, with no expectation of individual welfare improvement of the giver.

The CEO in a crowdfunding project would use social media to reveal the hidden common interests between the affinity users and the company. The affinity user is searching the internet for relationships with like-minded users, and would not generally be aware that the company represented a potential resource that could contribute to the user?s conception of the good society.

By helping the affinity user imagine the relationship with the company, the CEO can lead the user to follow the inward link to land on the company website. Once the user is on the website, the user can begin to investigate how the relationship ?fits? into the user?s social welfare function.

Diagram 2, below, describes how the Social Media Marketing Strategy for a crowdfunding website would work. ? 2013. The Private Capital Market, Inc. All rights reserved.

The CEO?s Management Oversight of the Strategic Internet Marketing Plan

The immediate goal of the internet marketing plan is to drive internet users, who may become potential investors, to click on links from the third party websites including blogs, press releases, social media sites and other internet locations, which bring them to the company website landing page.

Both SEO tools and SMM techniques must be combined with traditional public relations tools to help users find the company on the internet.

The CEO must manage six essential tasks, all at the same time.

  1. Push marketing of invitation emails to pre-selected affiliates whose contact information was derived from company rolodex files and traditional sources. The push marketing email campaign would invite the recipient to ?learn more? about the company, and would not necessarily push the idea of an investment. The main idea is to alert the recipient to a new opportunity of having a relationship with the company.
  2. The creation and management of the company investor relations webpage, that acts as the landing page for inward coming links that users are following from external websites. When the potential investor first lands on the page, the mental image of how the company could fit into the welfare functions must be immediate.
  3. Pull marketing tools, like internet press release distribution, news story distribution, and company announcements, which pull the user to the company landing page.
  4. Pull marketing tools, like ads on angel investor or venture capital matching websites, or other media sites where investors go to obtain information.
  5. Pull marketing tools, like events on business calendar websites to attract both affiliates and affinity users who may have an interest in registering to attend the event, and follow the link back to the company website.
  6. Integration and coordination of the company landing page with the company due diligence portal, where the CEO manages the flow of communications with potential investors as they conduct their self-guided due diligence of the investment opportunity. The CEO must make it easy for a potential investor to follow the links from the company landing page to the company due diligence platform.


Understanding the Uncertain Survival Of the Crowdfunding Innovation

Placed in the context of evolutionary economics, crowdfunding can be seen as one way that a radical technological innovation has disrupted traditional ways of raising private capital. Crowdfunding falls under the jurisdiction of the 1933 Securities Act, which contained an exemption for companies raising non-public securities from the rules of registering public securities of an offering with the SEC..

The 1933 Act was modified and amended by rules adopted in 1958, whose most well known provision is Regulation D, Rule 506, that involves how to offer private securities to sophisticated investors, commonly called ?angel investors.?

The Reg. D, Rule 506 amendments were further refined by the provisions of the 2012 JOBS Act, commonly called the Crowdfunding Act, which modified how the internet could be used to solicit investors to begin their investigation of a private offering.

Under the older model of private offerings, broker intermediaries intervened in the market relationships between companies that needed capital, and the sources of capital. Their intervention was sanctioned under the provisions of the 1934 Securities Market Act, that described how brokers were paid.
The broker?s intervention, in other words, is based upon their financial interest in being paid, and the new way of raising capital threatens that financial interest.

Seen in the evolutionary context, the broker?s intervention in the relationships between the company and the potential investors under the old rules tends to disrupt the free flow of information and creation of knowledge that precedes the creation of new markets. In other words, seen from an evolutionary perspective, their intervention tends to create an asymmetry of information that has the appearance of a monopoly in private capital markets.

That older model of raising private capital tended to create dependency relationships, where the company CEO was dependent on the broker for information and capital. The newer internet model tends to create an independency of the company in issuing its securities directly to investors, without the assistance of the broker intermediary.

As would be expected from an evolutionary interpretation, the forces of the status quo are attempting to hang on to their unfair information advantage over the company in order to hang on to their unwarranted financial interests in acting as intermediaries in a private offering.

This is one explanation why so many of the new crowdfunding websites are built on the old model of price-based relationships, not on the newer affinity and affiliate relationships. Under the older model, the broker intermediaries continue to enjoy an unequal exchange of power that results in a form of monopoly profits, for them.

This evolutionary explanation, as applied to the politics of Washington, is also one reason why the SEC has delayed implementing the necessary crowdfunding rules that would allow the general public purpose to be served by internet equity crowdfunding.

At this stage of evolution, the future survival of crowdfunding, as a technological innovation, is uncertain, even as the marketing strategies available on the internet for successful crowdfunding projects become more sophisticated.

The first part of this article is here.

Vass manages a crowdfunding website called The Private Capital Market, where private technology companies can raise private equity. He is the author of books on the theory of technology evolution and the holder of a patent on how to combine technology stocks with bonds to match an investor's investment risk profile. His analysis of internet marketing strategies to promote a crowdfunding project is based upon his experience, research and partnership with, a leading internet marketing company that will assist his client companies in promoting their offerings to attract investors for their private offering.


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