This article continues our series on how Intercoin helps you raise money for your projects. The previous installment was here:
Four Kinds of Investment
People can invest at least four kinds of resources: their time, data, social capital and money. Just as in sales, you’ll benefit from having a value ladder that begins with you giving free value first – products and services you can deliver at almost zero marginal cost to yourself, such as digital web services you’ve already prepared. These can be polished and present a great first impression of you and your brand / business.
In order to take advantage of this value, however, a prospective investor or customer would have to contribute their data (fill out a profile, or tell you about their community), their time (watching your videos, leveling up in a game, etc.) The result they receive at every step should exceed their expectations, and have an easy way to invest further. Having invested time and data thus far, if everything is smooth and integrated, they will be likely to invest further. Some of this can be attributed to psychological effects around sunk costs and the Benjamin Franklin effect.
Example: YouTube
YouTube was founded in 2005, and got acquired in 2006 by Google for $1.6 Billion, beating out their internal Google Video project. It went viral because it allowed users to contribute the content. After the users invested their time (recording the video) and their data (uploading the content and entering the title, description, keywords, etc.) it was only natural that they’d follow up by investing their social capital by… sending out emails to their friends and family with links to YouTube where their video was stored.
Why did users contribute the content to YouTube? Because YouTube took care of the infrastructure. Its servers did the heavy lifting transcoding the videos and hosting them to anyone around the world. Once built, this infrastructure was made available to everyone for free – although it did cost YouTube a lot of money to operate, the marginal cost per video was small, far smaller than if each person had to manually transcode the video and host it somewhere. Plus, YouTube kept improving the service, adding servers around the world to help stream the videos better.
Why did the users invite their friends? Because otherwise their video would probably not be seen by anyone. While the platform could show the video to others interested in the same keywords, that would remove the need for the user themselves to bring their friends to the platform (e.g. Vimeo, etc.). Once their friends came and viewed that video (investing their time), they’d be likely to watch even more videos (investing more of their time) and eventually sign up and start uploading videos of their own (investing a lot more time and data).
It was this dynamic that made YouTube rocket past Google Videos, and force Google to actually buy them out. (YouTube also began facing lawsuits over copyright on uploaded videos, which the Google acquisition helped save them from, making it Google’s problem. It was years until Google developed the ContentID system.)
Have Smaller Rounds
Traditional ways of raising investment rounds are all-or-nothing affairs, with the investor either saying No and investing $0, or investing at least a minimum amount (e.g. $100K check size from a VC). Nothing in between. Intercoin offers a solution for just such types of fundraising, carefully designed to eventually help turn most Nos into Yeses.
However, closing such a round can take a long time, and your company / project often starts running out of money. In this case, it makes sense to do a smaller, more flexible round, such as crowdfund under Reg CF or using Reg D Rule 506b. Here is an example: https://wefunder.com/qbix
In each round, anyone who invests the minimum amount for that round would have rights to invest in the next round. In addition, they could have access to group discounts, which encourages them to bring their friends into the round and unlock bonuses once their group passes various thresholds. In this way, you build investor loyalty and even turn them into an army of evangelists, turning your project into a movement.
We help consult on these kinds of things, and introduce you to licensed platforms who can help you host a compliant crowdfund. For actionable strategies about regulations around raising money, start by watching Intercoin’s hour-long interview with Sara Hanks, one of our advisors, who helped write Regulation S for the SEC. If you’re interested in speaking with us about your project, get in touch:
The Takeaway
So, what can we learn from this? Sometimes we don’t need to ask people for money right away. Instead, we should offer them value based on systems we already built, value which carries very low marginal costs for us to deliver, because of our own economies of scale. Value that is polished and shows a good first impression. Alex Hormozi often says the same thing in different words.
But it’s more than just about offering value up front. It’s also making it easy and natural for the customer or investor to collaborate with you and invest something of themselves into the outcome. Then they are far more likely to share it with others.
You can build an entire value ladder, where at each step, the person is getting far more than they thought. Understand that a lot of the time, in order to utilize the value you provide, the person will have to further invest something of their own, to personalize the result to themselves. The combination of your system and their investment will create a result that they can be proud of.
If people spend a lot of social capital, for instance, and on-board their entire school onto your platform, suddenly they are locked in. Even if a bigger, better platform comes along, it’s much harder to switch away when all your friends are on the original one. The power dynamic flips, and you can then start charging money.
Handling Customers
Advertise your limits around how many customers you can handle (which is another thing Hormozi says). This is a great way to keep customers competing for your business, while remaining honest and transparent. (It’s true that nightclubs artificially keep people outside in the cold even when the club is half-empty, or invite their friends and promoters to take the tables, to fake this scarcity. This is less honest, but that’s because the nightclub starts with a large empty capacity in the beginning of each night.)
Intercoin offers Auctions for built-in Price Discovery so that only the most motivated people who are willing to pay the most end up taking your classes or attending your concerts, leading to a higher quality for all your events. Especially if you offer networking at the events and on your own app.
By keeping your events, classes, office hours and livestreams exclusive, you can actually start to flip the script as to who needs your products and services. You can, for example, allow people to unlock a membership level where they can invite +2 friends to subtly show off their exclusive access. This is often what high-end restaurants and clubs do.
To learn more, explore this visual presentation:
Set up a meeting with us and let’s discuss how Intercoin can help you make your next fundraise a success: