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Start Your Business Startup Funding

Q&A: How to Raise Capital with the JOBS Act's Equity Crowdfunding

Q&A: How to Raise Capital with the JOBS Act's Equity Crowdfunding
Credit: PathDoc/Shutterstock

Co-founders of the technology startup Keen Home, Nayeem Hussain and Ryan Fant are coming fresh off of a highly successful round of equity crowdfunding. Using the JOBS Act's Title IV Regulation A+ rules, known colloquially as a "Testing the Waters" campaign, Hussain and Fant partnered with the crowdfunding platform SeedInvest. The duo ended up bringing in $4 million in capital in just five days. Since the JOBS Act is fairly new and equity crowdfunding is largely uncharted territory, Business News Daily sat down with Hussain to discuss Keen Home's success and how the company navigated the process. Here is his advice for turning an equity crowdfunding campaign into real capital.

Business News Daily: Please briefly tell me about your company.

Nayeem Hussain: Keen Home develops hardware and software products to enhance a home's infrastructure. We wake up sleepy devices and systems with innovative, full-stack technologies to provide homeowners with increased comfort, improved efficiency and a better-maintained home.

Keen Home's software platform offers partners data for lead generation, actuarial insight for risk pricing, and [tools for] peak load management.

Our first product, the Smart Vent, was launched in November 2015 and has grossed $2M in sales on over 30,000 units sold.

BND: What is it like preparing for equity crowdfunding for Title IV, and what should other entrepreneurs be aware of when considering doing so?

Hussain: I would very much liken the process to prepping for a product-crowdfunding campaign (i.e., Kickstarter or Indiegogo). We subscribe to a three-phase system for promoting such a campaign.

The first phase involves activating your existing community of supporters (these are customers, subscribers to your newsletter, and friends or family).

The second phase involves running digital ads, soliciting press coverage, and asking prominent investors and advisors to spread the word and offer endorsements. This second wave is designed to increase awareness and credibility at the same time.

Finally, the third phase involves entire marketing campaigns, targeted emails and initiatives that will yield the broadest possible exposure. Ideally, the campaign will already have picked up steam prior to phase three, such that press coverage is easier to secure.

BND: What advantages did you see to using Title IV as opposed to more conventional methods of selling equity?

Hussain: Ryan, Will and I founded Keen Home three years ago to help homeowners live more comfortable and energy-efficient lives. We have long been firm believers that great solutions come out of great ideas and the coalescence of feedback from the community a product is built for. It makes sense that the same community should have the opportunity to own a piece of the company that is building those solutions.

Mostly, professional investors are financially motivated — oftentimes, this motivation can hamper long-term value creation. If we were to execute a Title IV raise, then we would not be as beholden to professional investors when determining the future direction for Keen Home.

BND: Were there any particular difficulties in either complying with the law or getting the word out about your equity crowdfunding campaign? What methods were most successful, and what would you recommend to other small business owners?

Hussain: We are working with SeedInvest to execute and manage our Title IV Testing the Waters campaign. SeedInvest has provided expert legal advice as well as a reputable platform to host our company page. I highly recommend [that] other small business owners work with a platform like SeedInvest to manage the legal intricacies and also enhance credibility for would-be investors.

BND: Were you surprised at the scale of your success? What do you think the most important factors of your campaign were that helped you raise so much money?

Hussain: We tempered our expectations with the fact that equity crowdfunding under the JOBS Act is very new, with very few companies achieving meaningful success. Keen Home is one of the first connected-device companies seeking to raise money in this fashion. These factors made it difficult to predict how our Testing the Waters campaign would perform.

Thankfully, the response from our community has been extraordinary. Further, since Keen Home is the first company [from the television show] Shark Tank to Test the Waters under Title IV, we have been able to generate buzz amongst the community of viewers that see an opportunity to invest alongside [Shark Tank investor] Robert Herjavec, an investor they admire.

The key to our early success in this Testing the Waters campaign has been the ability to garner the support of our community members. Long before this campaign was conceived, our head of community, Nate Padgett, was hard at work cultivating a loyal group of evangelists and brand supporters. Our supporters appreciate the authenticity, ingenuity and passion that Keen Home represents, and they want to go along for the ride.

BND: How do you intend to utilize the capital you've raised? How important was attaining this capital to making your vision a reality?

New funding will help Keen Home with:

●       Product enhancements and more partner integrations

●       Product extensions like new faceplate designs and different Smart Filter models

●       Increasing manufacturing capacity to meet growing demand

●       New sales and marketing initiatives to grow the business

●       Future product development

Our vision is to be a leader in smart-home infrastructure innovation. To achieve our goals, we need resources to invest in R&D, marketing, product design and manufacturing. Our series-A capital raise will allow Keen Home to continue to own the Smart Vent category and expand into new areas like flood prevention and indoor air purification.

BND: Now that you've been through the process, in your opinion what is the most important thing an entrepreneur needs to be aware of when raising money under Title IV?

Hussain: Set yourself up for a successful Title IV campaign by formulating a multiphased strategy to activate various stakeholders of your business. Similar to recent political-campaign fundraising efforts, grassroots support from many donors is preferable to the volatility that comes from fewer supporters. Make sure that you have done the work to build a strong community who will evangelize your product/brand, and that endeavor will pay dividends.

BND: Is there anything else you'd like to add?

It's important to note that equity crowdfunding does not preclude a company from traditional venture-capital funding. A common approach is to secure commitments from professional investors and then "fill out the funding round" with Title IV funds.

Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.