Startup crowdfunding is increasingly popular and accepted. Start-up businesses need infusions of capital and they have often needed to go back to their bank repeatedly to get new funding or expand their credit lines. Now startup crowdfunding has started to offer a new possibility that allows the company to turn to a new source of capital.
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.
