How Social Media Can Impact Your Chances To Raise Venture Capital
“Shark Tank” and its Japanese equivalent, “Dragon’s Den,” are reality TV shows, in which startup entrepreneurs pitch their business ideas to a panel of investors, hoping to get the funding they need to move forward. The process of getting on these shows is not fully disclosed, but we can say that only a small minority of startups make it. And even then, many presenters are turned down.
There are also organizations that hold annual events, during which startups can pitch their companies to potential investors. Again, getting on the docket for one of these events is time consuming and costly.
So, how does a startup find the funding that it needs?
Startup funding options
Traditionally, entrepreneurs with great business ideas (products or services) have had only a few options for raising funds:
- They have an amount of money from their own resources and plan a “lean startup” using what cash reserves they have.
- They can tap into friends and relatives looking for various ways to invest their funds.
- They can develop a business plan and pitch it to traditional financial institutions in hope of getting a loan.
- They can try to connect with venture capitalists (individual or firms) who might be interested in funding their projects.
But according to CoinMetro CEO, Kevin Murcko, things have changed in the financing world thanks to innovative new tech like blockchain, cryptocurrency and social media. Now there is crowdfunding and peer-to-peer lending, driven by social media platforms – places where startups and potential investors can “meet and greet.”
The increasing role of social media in startup funding
Social media can alleviate some of the challenges of traditional funding. According to a new study conducted by Wharton School of Business, in fact, social media activity and the ability to obtain funding are positively correlated. And here’s how:
- Social media enables startups to broadcast information about themselves to a wide audience.
- As startups gain followers, their activities can attract attention of angel investors who are looking for opportunities, but who often lack the organizational structure to research them.
- According to the study, 60% of startups use Twitter to spread awareness; 47% use Facebook; and 36% use LinkedIn.
The Wharton study focused specifically on how startups leverage Twitter and their success rate in acquiring angel investment funding as a result. The variables taken into account including the following:
- The number of tweets posted by each startup by screen name that contained a link to the startup.
- Mentions: the number of distinct posts that mention the startup’s screen name in a month’s time.
- The number of views of a startup’s Tweets in a month’s time.
- The number of Tweets about a screen name that includes a positive sentiment about the company.
- The number of followers for each screen name in the study.
The dependent variable in this study was obviously the success in raising the funds. Accessing the study results will reveal a number of tables and charts that speak to the correlation between Twitter presence, following, mentions, etc. and the success of funding goals.
How exactly social media impacts funding rounds
Based on a statistical analysis of the data, the researchers came to the following conclusions:
Social media presence/activities do indeed influence the ability to find and close better funding rounds. There are some important caveats though:
- Simply being present on Twitter does not automatically guarantee more funding for a startup.
- The number of tweets shared by startups does not significantly affect the funding outcomes. In fact, being too active can actually hurt your venture – posting more than 580 tweets per year could actually hurt your company.
Social media presence does promote a positive brand image, draw in larger following and get more followers to retweet the startup’s messages. All of these things attract a larger pool of investors who are looking for opportunities. For instance, the researchers estimated that a one standard deviation increase in the Twitter Influence measure lead to an extra $1.5 million in 2nd round funding for researched startups. That was the equivalent of either of the following:
- Increase of number of mentions by 4.6%;
- Increase of number of impressions by 12.0%;
- Increase of number of followers by 209,815;
- Increase of average sentiment score in people’s tweets mentions of the startup firm by 0.02 (with all negative sentiment as -1 and all positive sentiment as 1.
Startups that focus on their social media activities get a larger pool of investors as well as more total investment capital.
Startups should take heed
As a startup founder or entrepreneur, getting the funding you need to run and grow your business could be the key to achieving your dreams, according to Alex Dee, Cofounder of The 8 Figure Dream Lifestyle. However, startup funding has gone far beyond traditional channels. Startups and potential investors must find each other through non-traditional venues, and these include social media platforms.
While the study that produced these results focused only on Twitter, entrepreneurs must pick the right channels for themselves – where they have the most followers or potential for followers and with which they are most comfortable.
Another tip? Create a unique hashtag for posts on all platforms you are using. You can then organize all of your posts into a single topic page, and people will be able to find them and learn about your funding campaigns. And ask your followers to use that hashtag too. This results in easier discovery and greater awareness of your brand.
Interact with your audience through engaging posts and through providing updates on your funding progress. And don’t forget to publicly thank investors (unless they wish to remain anonymous).
Pitch to journalists. Twitter is perhaps the best venue for this. It is widely used by journalists to find leads for their stories. Get to know the journalists on Twitter and their specific requirements for pitching stories. Follow those who are a good ‘fit” for your startup and develop a relationship before pitching.
The bottom line? The more effective you are in using social media to promote your startup, the more you will gain the attention of investors.