Investing in Startup Crowdfunding

Investing in startup crowdfunding holds great potential for both small and large investors. You may be here wondering whether entering the world of startup crowdfunding is a good investment to add to your portfolio. The choice may not be as difficult as you might think. If you are careful in choosing a company or product that is diligent in giving you the information you need and in screening startup crowdfunding applicants carefully, you can do well. But first you need to decide if this type of investment is for you, and that involves three basic questions:

Startup Crowdfunding Returns

What returns are available to you on other forms of investment? In other words, look at the rates your money would earn in more traditional investment instruments and decide whether that is satisfactory. Whatever your goal is as far as money you’d like to earn, are you likely to meet it now? If you feel your current investments leave you short or that you can carry a few higher risk/reward choices in your portfolio, startup crowdfunding may be a good choice to look into.

Crowdfunding to Diversify

Are you looking to add diversity to your investments? Perhaps you feel like your current returns on you investments are okay, but you are not investing in enough instruments to ensure that if one of your investments gets hit, there will be others protecting your total return. Of course investing in startup crowdfunding adds more risk to your portfolio and also more reward, so you need to calculate whether this is a potential a good move for you.

Startup Crowdfunding Risk

Finally, how much risk are you willing to take on? A startup crowdfunding loan may be more risky than some other investment strategies and the payoff must be assessed in relation to this. That said, investing in startup crowdfunding may also be a way to lower risk on more risky portfolios. You might choose to also pursue lower risk choices for other parts of your total portfolio to balance your choice.

How to Make a Startup Crowdfunding Investment

These are the core questions a potential investor needs to ask before investing in startup crowdfunding. Assuming the answers point in the direction of an investment, the next step is to choose how to find a solid investment. Once again we find three steps involved:

1. Look for a crowdfunding startups investment website or platform that has been around for long enough to give you information and statistics about risk and reward – what is the percentage of their loans did not default. You want to know that the site carefully screens applicants and that companies with attractive pitches do choose that site.

2. Look for a startup crowdfund investment platform that offers a wide variety of choices for your investment. You want to choose among types of company, product, service, or purpose. You may want a mixture of large and small and individual and group pitches.

3. Look for investor reviews of how easy (or not) the crowdfunding for startups site is to use and how responsive they are. You want excellent service not only from the business or person you are investing in but also the broker – the website – through which you will be doing this business.

Choosing Among Startups to Fund

The next step in investing in crowdfunding startups is literally choosing the investment you will pursue. This may be relatively easy if you know specifically the type of product or service you want to promote, and harder of you are merely looking to generally add startup crowdfunding to your investment lineup. If you are closer to the latter you may want to carefully write down exactly what you are hoping for, the criteria you will use to choose among the finalists, such as:

Quality of Pitches

Make sure that the pitches answer all your questions. As a crowdfunding startups investor you have the right to know all the details about your potential choices. Don’t make any assumptions and push the applicant to be thorough and clear in all areas. A positive sign as far as a potential investment is that the applicant has thought things through. In other words, your questions can help on two levels, first because you literally want the answers, and second to show how much thought and research has gone into the pitch.

Research Startups to Fund 

Do your own research. Many applicants will tell you about the market research they have done – what competitors they have, how many similar products or services there are out there, and what the market will be willing to pay for the product or service. In most cases this information will be accurate and true, but you may want to do a little research yourself, or at least ask for details as far as the methods they used to get to these numbers.

Research both the product and the people before investing in startup crowdfunding. You may feel great about a product or service but be disappointed in some of the characteristics of the people (lack of sales experience, nit outgoing enough to really carry a marketing plan forward, etc.), or you may feel that even a slightly less exciting product that is backed by incredibly talented people has a good chance. Of course ideally you would find a superior product that is being promoted by incredibly talented people for your investment, but this is not always possible.

After You Make Your Crowdfunding Investment

After you’ve gone through the above steps to choose the right crowdfunding for startups choice to invest some money in, do not lose touch with the company you have invested in. Ask for updates if you do not get them automatically, and do not be afraid to ask questions. Push the company to be transparent about how they are doing and whether they are meeting the goals they set. Perhaps you did not invest all that you eventually intend to, and you want to be ready to put more money on the table if you like what you see. Conversely you may want to assess whether you should sell your equity share (if this is possible) if you are concerned about what you see.

Just like any investment you not only want to track the performance but also the underlying strength of the company and the success of its philosophy as it moves forward. Additional steps you may need to take with this types of investment is watching the marketplace for competition, in some cases keeping track of regulatory changes that could affect the product or service, and seeing what alternatives emerge for consumers.

Investing in Startup Crowdfunding: The Bottom Line

In the end you may choose a crowdfunding startups investment based on a gut feeling. Hopefully you have used the above advice and other information to narrow your choices, but at some point you may just have to decide between a few choices using a bit more subjective criteria. That is perfectly okay, particularly if you have used a little science to narrow things down and now you are presented with a few equally compelling crowdfunding for startups choices.

CNBC has an article predicting the strong crowdfunding for startups and Business News Daily covers Crowdfunding startups sites

We’d be happy to offer advice and guidance about startup crowdfunding through our contact page.

The post Startup Crowdfunding: Investor Guide first appeared on Performance Psychology Group, LLC.

Advantages of Crowdfunding for Startups

There are many advantages of crowdfunding for startups. The most obvious is that it opens the door to types and sometimes even amounts of funding that would otherwise not be available. Sometimes a business is too new to qualify for much of a credit line from a bank, or maybe not enough equity has been built up for a traditional loan. The other significant advantage of crowdfunding for startups is that you might develop a lasting and perhaps more profound relationship with your investors, which can persist through different product or service launches or expansions. More minor benefits include the ability to access money more quickly, the potential to have a built-in test group to run things by, and the additional PR you can gain when your investors spread the word about your product or service.

Crowdfunding for Startups: The Math

Of course, there is also the math involved with crowdfunding for business start-ups. Unlike traditional loans, you may get more favorable payback options with this choice, or at least some creativity in how and when you need to pay things back. You may be able to borrow a little at a time, just like having a credit line, but with more favorable terms than with a credit line. In addition, you may be able to more quickly and easily flex that credit line if you are successful or a new change or addition looks promising.

Disadvantages of Crowdfunding for Startups

The main disadvantage of this type of business funding is how hard it is to get in the first place. You will compete against many other businesses with new products and services they hope to get funded. As opposed to a bank that will consider all requests before making a decision and could potentially fund a high number, your crowdfunding for startups quest will compete with many companies. The other disadvantage is that the money may come with many strings attached – different reporting than you’d need to do with a bank and the need to follow up with certain perks. You may have to put more work into this type of funding overall.

Keep in mind that any time your funding includes giving up any equity, the disadvantages enter another territory, with the possibility that you will give up far too much of a valuable product or entire company a distinct possibility. We cover equity crowdfunding elsewhere.

This recent article describes the importance of crowdfunding for startups, and this article from Entrepreneur discusses crowdfunding for business startup investing.

Steps to Crowdfunding for Startups

Here are the general steps you must take if you apply for crowdfunding for start-ups. Some of these are quite general because the detail will come in the interaction between your chosen website and your need:

Organize yourself for Crowdfunding for Startups

• Know exactly what the funds will do for your small business. Explain clearly what crowdfunding for business start-up investment would allow you to do specifically. This will help you arrive at the correct amount of your crowdfunding and will clarify in your mind precisely what you need. Of course, it will also motivate you to pursue your funding assertively! You need to come away with a solid, clear, compelling elevator pitch. Try it out on friends and colleagues, and refine it to the point that it is perfect and concise. Keep in mind that potential investors are looking at websites with many possibilities. You only have a few virtual seconds to make your pitch.

Find the most appropriate crowdfunding for startups’ websites.

• Look for a startup crowdfunding website that has been around for a while, seems to fund projects like yours, and has a track record of finding funders at the level you need. When you’ve arrived at just a few, compare them to a bank loan – interest rates and terms. Look for projects like yours and see whether they have been noticed and funded, but be careful if the competition is so strong that your project will get lost in a bunch of like projects. This may be the most crucial step in your path to getting crowdfunding.

Carefully fill out all material you are asked for about your project or service.

• Make it incredibly compelling but also detailed as to why you need crowdfunding. In other words, it appeals to both the right brains of the investors and funders who want to know how great you could be and the left brains who want to know exactly where the money will get you there. After your clear and concise elevator pitch reels them in, you need to ensure you provide potential investors in crowdfunding for business start-ups enough information to decide whether your project is an excellent fit for them and has been well thought-out and conceptualized by you.

Use multimedia in your crowdfunding pitch.

• This is a great way to show off your product, service, or even yourself, and show potential investors that you are technologically capable and motivated to go beyond the written word. Spend time with compelling pictures and videos. Not only does this help give an in-depth view of your project or service, and it shows how innovative and motivated you are to spend time promoting it. Those looking to invest in crowdfunding for business start-ups will be impressed by a multimedia presentation and may be tempted to share it with others.

Keep in touch

• Sometimes potential investors in crowdfunding for business start-ups do not decide on their first or second pass through a website. Instead, they will bookmark specific promising projects to return to. They will look to see if new information is posted and how the initial steps are going. Of course, you may need their funding before you do too much. Still, suppose you can try out your project or service on a small test group, do market research, refine your marketing plan, or generally update your goals. In that case, this can help the investors better understand your product or service and show that if they invest in you, you are motivated to work hard on the project.

When You Are Up and Running

As the crowd assesses your potential project, you will likely be asked for additional information. Make sure you are thoughtful, diligent, and fast in getting the information to the prospective crowdfunding for business startup investors – not only do you want to make sure they do not lose interest but also see how you will respond when day-to-day challenges require you to do something. Try to understand from their request what their concern might be and proactively answer the direct question and any underlying concerns.

When you receive your crowdfunding, it will not be without strings. The crowd will want updates and information about how things are going. They may not release all the money immediately, so you must prove your project is viable and on track. Put as much effort into follow-ups with the crowd as you did when you initially got the money so they stay interested and motivated, whether merely to give you the rest of the loan or if you need to return for more funding.

One of the over-arching goals of the crowdfunding for startups process that many small business owners overlook is that you want to end up with investors who remain interested and engaged so that you might go back to them as your business grows and expands. Keep that in mind, and you will find success even beyond what you initially thought.

If at First…

One of the most complex decisions you must make when applying for crowdfunding is what to do if your project is not funded despite you taking all the above steps. Of course, you still consider your project meaningful and compelling, but the crowd is not (literally) buying in for some reason. There are three options at this point:

1. Change something about your pitch. In other words, add a perk to the investors or even go as far as to raise the rate you are willing to pay or the amount of equity you will give up. Add other products into the mix of what the investors will get if they buy a certain amount of equity in your crowdfunding for business start-up pitch. All these options and more fall under the category of significantly changing your pitch regarding the actual benefits to the investors.
2. Change your crowdfunding platform if you think a different website might attract investors. This step will only work if there is an excellent reason to do this – did you notice that another crowdfunding website seems to present pitches differently or attract precisely the kind of investor you are looking for? Does the new crowdfunding website give you a better chance of attracting the investment you seek? If so, then changing crowdfunding platforms may be worth it.
3. Change the crowdfunding you are pursuing. Of course, this is the most radical step and might involve changing from a peer-to-peer loan to an equity crowdfunding pitch. Or maybe you thought you could give insider perks, but now you need to provide a little equity or payback.

Crowdfunding for Startups Summary

For an investor, crowdfunding for a business startup is quite exciting. They can hope to choose the idea or company with the most potential, and therefore there is the perception that they can make a lot of money this way. This approach by the investors puts more pressure on you to ensure they see the potential in your product or service, but you cannot make the mistake of over-promising. Remember that this is a long process, and you could lose your funding if you cannot meet the goals you have set over time.

The key to crowdfunding for startups is the balance between keeping the investors excited about your product or service without overdoing it. Also, remember that ideally, the crowd becomes interested in continuing to fund new ventures after your company is no longer considered a startup, so you need to keep them engaged and interested even after your product or service has rolled out. If your funding is of the equity type (rather than just a flat amount with a fixed payback), you will be related to these investors for a long time.

Remember, we can help! Our services are mostly free and all guaranteed. Contact us if you’d like to talk about your fit with crowdfunding for startups.

The post Crowdfunding for Startups: Entrepreneur Guide first appeared on Performance Psychology Group, LLC.