Editor's Note: The following was originally posted on Crowdsourcing.org and is 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 introduces two ways for entrepreneurs and CEOs to market their equity crowdfunding raise.


One of the ways to think about the social and economic effects of the internet is to imagine all the ways it changes market relationships between its users. 

In an evolutionary interpretation, when two distinct technologies cross over, such as telecommunications and electronic devices, new markets are created that tend to disrupt old markets and the old way of doing things. For example, the internet has created a new information exchange based relationships, where the value-added, or unit of exchange, is measured in the value of the information.

The new information relationships in financial and product markets are disrupting the older exchanges between consumers and producers that were price based, where money was the unit of exchange.
In one application, the internet is creating new private capital market relationships, which are tending to displace price based investment relationships. These new types of relationships imply that new marketing tactics and strategies need to be created to accommodate the new realities. In other words, a CEO of a company that is seeking capital needs to visualize how to find investors on the internet in new ways.

This is a subtle but important point because most of the new crowdfunding websites have been built on the model of the older price based relationships, where the new forms of marketing will not be effective. While most crowdfunding websites may be new, their marketing platform is already obsolete, in an evolutionary way. A CEO assuming that all crowdfunding websites are created equal will be disappointed when no investors show up to buy their private offering.


The most important change in equity crowdfunding marketing strategies is that potential investors are using the internet to search for information that improves their decision making, not necessarily looking for the lowest cost. At the beginning of his search, the potential investor is probably not even aware that an opportunity exists, and may not be searching for a financial or investment relationship.

In the older tradition of marketing, the strategy was based on the goal of increasing transactions at the point of sale, generally based upon the lowest cost for the consumer to derive the greatest benefit. In that theoretical model, the consumer is trying to maximize welfare, as visualized by a consumer welfare function. The consumer would begin that search knowing exactly the product or service that would serve the consumer’s interest.

In that older tradition, the fleeting relationship between buyer and seller was a one-time event, instantly consummated by a price-based transaction. The goal of that older marketing tradition was to increase sales, and then try to get the consumer to buy and buy again.

In the new way of marketing, users of the internet are searching for longer term solutions, and more enduring, stable relationships to gain information that guides them over a longer period of time. This is one reason why users of the internet constantly check their website bookmarks and hand-held devices so frequently.

In social media marketing, for example, this urge for on-going information is one reason why the Facebook “Like” has such marketing power. Users constantly go back on the internet to check to see if the number of “Likes” are increasing, especially if the “Like” is about them.

What this first change in internet marketing means for crowdfunding, is that the CEO must anticipate that potential investors will be attracted to the company for a longer term information commitment, not a relationship based on a quick price based encounter.

The second big change for marketing a crowdfunding project is based on a change from one-directional messaging to multi-directional messaging. On the internet, the information exchange is a two-way communication between users, and occurs on different modes, or pathways, of communication, like blogs and instant messaging.

Once posted or uploaded to a website, a blog or a user review becomes a historically permanent piece of information that both current and future users can rely upon to guide decisions. The influence and impact of the blog permanently alters the user’s perception of the information relationship.

What this second change means for CEOs is that they must anticipate ongoing information exchanges with potential investors, and be prepared to engage them in conversation over an extended period of time. In marketing, the message is sent before, during, and after the investment securities offering period.

A third big change for crowdfunding marketing is related to the distinction between linear, and non-linear messages. In the older tradition, a message was packaged along a linear communication path. For example, a radio or television, or newspaper ad for a seller contained the same message to heighten the brand awareness.

In the new way, the message means different things to different people. This is one explanation for the effectiveness of the Obama campaign use of the internet compared to the Romney campaign. The Obama campaign message on the internet was targeted to selected groups in certain ways that appealed to that group because they heard the message in different ways than some other group.

The Romney campaign just repeated over and over that he was a competent leader, which meant different things to different groups. That marketing strategy for Romney may have been more effective 25 years ago, before the advent of the internet.

For crowdfunding, this third change means that the CEO will engage the potential investors in many different markets and modalities, and that the feedback from the internet users will come back to the CEO along different pathways. The CEO must set up a feedback management system that mirrors the way users will communicate with the company.

The main point for a CEO contemplating a crowdfunding project is that the marketing strategy to find investors will be more like extending an open, ongoing offer to potential investors, inviting them to imagine their future relationship with the company.


The most common use of the internet is to search for information, and the CEO’s marketing task is to help the user find the company, and then help the user “imagine” having a relationship with the company. These marketing tasks can be broken into four steps:

  1. Helping the user find the company on the internet.
  2. Helping the user imagine having a relationship with the company by describing how the relationship “fits” into either the user’s individual welfare function or the user’s social welfare function.
  3. Helping the potential investor “actualize” the relationship by making it very easy for the user to conduct an investigation of the company to confirm or deny the utility of the relationship.
  4. Establishing an ongoing user feedback communication mechanism for an information exchange based relationship.
In a rough approximation, these four steps fit into the theory of social exchange developed by Harold Kelly and John Thibaut, in their 1956 book, The Social Psychology of Groups. Applied to crowdfunding, their work suggests analyzing relationships before, during, and after an exchange in order to see how the behavior of the users continues to influence each other after the exchange.

In the case of using the internet for crowdfunding, the internet constitutes the technological platform for facilitating the information exchange relationship, where the behavior of the company and potential investor continues to affect each other’s behavior after a private capital investment has been made.

The important point for marketing strategy is that the CEO is looking for potential relationships, and that means anticipating two important types of places, or markets that did not exist before, on the internet to find potential investors.


Technological innovation causes new markets to be created that did not exist before. In the case of capital markets on the internet, two important new markets are: the affinity market of users who share an interest with each other, and the affiliate market of users, who have some potential affiliation with each other.

These two new markets require new terms and new explanations in order to use them in a crowdfunding marketing strategy. Both affiliate markets and affinity markets are relationship-based, and the older marketing concepts that are based upon prices do not work well anymore for finding affiliates and affinity users.

In many cases, the new terms generally evolve from the older theories or explanations, but are not very accurate. For example, in marketing theory, professionals use the term “supply chain” as a way of describing the production relationships between producers who “add value” to the product at each step of the chain, as the product makes its way to the final consumer.

In the older usage, the value added by each producer is expressed in terms of price, which finally gets converted to profit at the end of the chain. The idea that there are partners in a value chain is like an affiliation, but the older usage is not exactly accurate for a new marketing theory based on information exchange based relationships.

Economists also have a way of expressing this idea about affiliations that they call production inter-dependencies. In their model of the economy, the relationships between producers are shown as a matrix of coefficients denominated by production prices. The bigger an individual coefficient in the matrix for two producers, the stronger their potential relationship, or “dependency” on each other to produce a good.

One great advantage of the economics input-output model of relationships over the marketing supply chain model is that it shows both forward and backward linkages, while the supply chain tends to be more linear in direction.

The forward and backward linkages in the matrix can be understood as dual relationships, and given certain types of statistical analysis applied to the coefficients, these dual relationships can suggest hidden, or non-observable, relationships that are surprising and unexpected.

One goal of the CEO is to use the statistical methods to help “reveal” and anticipate where the potential investors may be hanging out on the internet so that the marketing message can find them, and then, if all works according to plan, the users can follow the links to find the company.

David Bryce & Sidney Winter, in their 2006, work titled "A General Inter-Industry Relatedness Index," (1) described one application of the statistical technique. One example they used to show the hidden relationships involved an unexpected relationship between users of batteries and users of razor blades.

Ed Feser used a different statistical technique on a regional input output matrix to develop “clusters” of companies that shared technology in common. (2)

The Feser statistical method tends to uncover hidden technological affinities between members of certain industrial clusters, and the statistical method that Feser developed for identifying affiliations in industrial clusters has direct applications to finding investors for an internet marketing crowdfunding project.

His use of technological affinities is an example of how an older economic concept evolves to describe a new market caused by technological innovation.

(1) Working Papers 06-31, Center for Economic Studies, U.S. Census Bureau

(2) Feser, E, H Renski, and J Koo. 2009. Regional cluster analysis with interindustry benchmarks In Targeting Regional Economic Development, edited by S J Goetz, S C Deller, and T R Harris, 213-238 (London: Routledge)

Thomas Vass manages a crowdfunding website called The Private Capital Market.com, 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 www.seo4anyone.com, 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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