When people talk about crowdfunding, it is natural to immediately think of capital raising. But to stop at this definition would be reductive. For many businesses, especially startups and SMEs, the real added value of a crowdfunding campaign goes far beyond money. It is the concept of smart money: intangible, strategic, relational and operational resources that can make the difference between simple survival and sustainable growth.

In this article we want to turn the spotlight on the hidden benefits of crowdfunding, bringing them back to where they deserve to be, which is center stage, where businesses need to look to take full advantage of the potential of alternative finance: let's find out What smart money means in crowdfunding.

Smart money: not just capital

For smart money means a type of "efficient" capital, whose value goes beyond the mere economic value of money. It is the capital that comes from sources capable of bringing in other assets as well, for example strategic vision, network and experience when the source is an investment fund or a business angel. In fact, we speak of smart money when investors bring into a company's intangible benefits in addition to capital: The value of money increases if you use it in the most efficient and effective way. 

This is also the case with a crowdfunding campaign, especially equity crowdfunding, and especially if it is conducted with all the trappings.

The added value of crowdfunding

Accessing "smart" capital through crowdfunding requires a clear understanding of the target of an online capital raising campaign. The best investors are the customers or potential customers of the company: people who already know the company or are potential users of its product or service, who have common interests or move in similar circles as the company.  

By participating in a crowdfunding campaign, those who are already customers become even more loyal and those who were not customers become customers: this is the first manifestation of the concept of smart money in crowdfunding. In one fell swoop you acquire both investors and customers.

But it doesn't end there: customers who become investors can also provide important feedback on the product or service, useful for improving it, and on communication, useful for making the most effective use of communication channels.

These effects are particularly amplified in theequity crowdfunding: whoever invests in an equity crowdfunding campaign becomes a partner in the company, so he or she has every interest in supporting the company and doing word-of-mouth marketing to foster its growth. 

Crowd investors also include useful skills and knowledge to be acquired, opportunities for professional collaboration and networking, and even industry professionals eager to expand their network and able to provide strategic resources.

Particularly for some types of companies, in addition to customers and potential customers, other stakeholders are also a target investor that can be targeted, for example, suppliers, distributors, and employees.The crowdfunding campaign thus becomes an opportunity to activate these connections and turn them into value, consolidating or creating partnerships and business relationships.

Let us now delve into the various declinations of the concept of smart money in crowdfunding.

Know-how 

One of the most surprising (and underestimated) effects of crowdfunding is the opportunity to direct contact with investors who have useful expertise to make available. These are often experienced figures in the relevant industry or management culture, ready to offer informal advice, strategic suggestions or contacts. This exchange enriches the company far beyond the economic dimension and can greatly influence its growth trajectory.

Business relationships 

Crowdfunding can become a powerful lever for forging business ties. Some investors can become Supply chain partners, new suppliers or distribution channels. Still others, loyal customers. This circular effect creates a virtuous ecosystem that sustains the business over time and makes it more resilient. The company can improve its positioning in its target industry and secure better margins and more consistent cash flows.

Community and advocacy

A well-executed campaign leads to the creation of a community of supporters who not only invest, but feel a part of the project. These natural ambassadors of the company contribute to the reputation of the brand, its dissemination and the consolidation of trust towards new customers and investors. It is free and authoritative advertising based on direct experience.

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Every crowdfunding campaign is also a marketing effort. Its time-limited nature, the uniqueness of the proposal and the offer of reward exclusive create a sense of urgency and attractiveness that stimulates media and public interest. The result is a spike in visibility that can generate commercial returns well beyond the duration of the campaign. Crowdfunding, moreover, is a competitive marketing operation, because a direct competitor is unlikely to be doing a similar thing in the same time frame.

Validation

For a startup or established company launching a new product or service, crowdfunding is also a powerful thermometer for measuring market interest. Successful capital raising is in itself a positive sign, but the feedback received, interactions, and data analysis (KPIs) collected during the campaign represent a true stress test of the product, communication, and positioning. A successful campaign represents a validation of the business idea, so it strengthens the credibility of the company and can also open the way for other sources of funding.

Business expansion and internationalization

With the European ECSP Regulation, effective in 2023, it has become easier for companies to launch crowdfunding campaigns across the European Union. This means accessing new and wider audiences, testing untapped markets, launching products in strategic market niches, or launching cross-border collaborations. Crowdfunding is thus confirmed as one A tool for commercial as well as financial expansion. 

The same principle also applies to the domestic market, in which new audiences can be tapped through crowdfunding.

Bonus: two hidden benefits of crowdfunding

The list of reasons why capital raised in crowdfunding can be called smart money is enhanced by two other more indirect elements that make crowdfunding a very beneficial activity for companies.

1. An equity crowdfunding campaign can be an excellent gymnasium with a view to a future IPO (Initial Public Offering). The required procedures, transparency in communication, and managing the relationship with a widespread base of potential new shareholders are also key skills for listing on the stock exchange. Not only that, through the crowdfunding listing one can use an equity crowdfunding campaign as a less complex and expensive substitute for an IPO. 
2. Organizing a campaign means learning how to sell not only a product, but the company itself. The skills and marketing and sales processes built in this context become a lasting asset, useful in all subsequent promotional activities.

How to get smart money from crowdfunding

In order for all that we have described to become reality, it is necessary to do a crowdfunding campaign "with all the trappings," as anticipated. But what does that mean? It means. Treat the crowdfunding campaign as a marketing operation. The goal is to sell an idea, an opportunity, a link, as well as a product or service. In this view, the offering becomes an exclusive product, and each investor a customer to be engaged in a personalized way.

Find out how best to do this by reading our article on the 10 essential tips for a successful crowdfunding campaign.