Unless you’ve been hiding under a rock for the past few years, you’re probably familiar with Crowdfunding. If you’re not, you really need to be. After all, it’s an industry that doubled in growth from 2014-2015 when it was calculated at $34 billion. In 2016, it is estimated to have beat out Venture Capitalism on a like-for-like growth basis.
But, for all the hype and growth potential surrounding Crowdfunding, is it an industry that will stand the test of time? And, more importantly, is it one that people should be confident to invest in, on and through? We think the answer to both these questions is yes. Let us explain why.
Article in a Glance
Fear of Change Stays Many Investor’s Hand
While many investors say they like risk and are willing to put their money where their mouth is, not everyone who says that, really means it. The majority of investors are actually very smart and also, quite risk averse. They’re more willing to put money into a venture that’s been proven in other guises, than they are into something brand new and a little scary.
But, in this world of tech innovation and market disruptors, many of the new start-ups could seem a little scary, or even very scary! Sure, everything they’re saying sounds great. But, who really understands it all?
And if there’s one sure fire way to put off your financial backers, it’s by showing them an investment they don’t really understand. Even if they get the financial side, if those potential investors don’t understand the basic premise of the business, then they’re unlikely to part with their cash.
But unfortunately, just because a start-up really does have a concept that will wow the world and bring huge profit, until enough of the right people are fully onboard and fully understand what’s on offer and why it will work, then the possibility of securing mainstream funding is bleak.
Sometimes, it can be the right group of people who understand and believe in a start-up’s idea who make smaller, but heartfelt investment that end reaping great rewards. Of course, we’re not saying all crowdfunded start-ups and ideas are winners. But, a lot of them are.
Heard of the Pebble Watch, Myroft Open Source Artificial Intelligence, VI personal trainer headphones, or the Joto art app? They’re all businesses that successfully raised in excess of their required funding and have gone on to be successful.
Of course, Pebble has since been sold, failed and had its tech bought up by Fitbit. But, many investors in the initial crowdfunding round reaped major rewards. And that counts for a lot, particularly if you only pledged a relatively small amount that turned into an unexpected profit.
How Crowdfunding Works
Even if you’ve heard of crowdfunding and understand how it works for entrepreneurs and start-ups, you might still be a little unclear as to how it works for the investor. As a potential investor, your first job is to find a crowdfunding platform that suits your needs and preferences.
There are over 400 websites and platforms to choose from, so take your time and find one, or a few, that you really like the feel of, along with the start-ups that feature.
Then, you’ll need to think about what kind of investment you’re looking for:
- Tech start-ups.
- Sport and fitness.
- Arts and crafts.
Or what you choose could depend entirely on the entrepreneur’s pitch.
A pitch will accompany every crowdfunding project. It should have already been vetted by the crowdfunding platform, but that shouldn’t stop you from performing your own due diligence.
No-one knows better than you what you’re looking for, what you consider a risk and what level of risk you’re happy to take. So, take the time to do this properly.
Once you’ve found a pitch and project you’re willing to invest in, it’s time to decide how much you want to risk. The beauty of crowdfunding is that quite often, you can investment from as little as $25.
The reward is likely to be small too though, often a copy of the product once it’s been manufactured, or access to the service that’s been created when it comes online. The potential rewards increase with the investment, eventually gifting investors with a share of the company – if the crowdfunding round is a success and everything goes ahead.
Once the time period for the crowdfunding campaign is over, success is determined by whether or not the investment target was achieved. When it is, a further round of due diligence is performed and if everything is in order, the crowdfunding platform will ensure all the I’s are dotted and t’s are crossed. At this point the investors’ pledges will be taken and corresponding rewards will be arranged.
Crowdfunding is a great Opportunity
But just because the initial investment amounts you pledge might be small, you still need to be thorough and careful in your research and risk assessment. You could end up making a better investment than you could have dreamed of. Or if just might not work out. But then, they’re among the same potential outcomes for any kind of investment.
If you feel you need more advice on how best to invest your money, then specialist firms such can provide unbiased guidance and help you make the right investment decisions. You should always approach business deals and investments with caution and with your analytical hat on.
As business development consultants GR-US.com say “an objective, third-party analysis of the business is a proven, cost-effective way to minimize one’s own mistakes.”
Beginner Investors and Old-Hands Can All Benefit
Crowdfunding platforms can be patronised by pretty much any kind of investor. From the novice, to someone with some knowledge, right up to an experienced angel investor.
For beginner investors, it’s a great way to work out how you really feel about risk and also, how willing you are to do your own research. If you know something about investment but want to learn more and try your hand at making your own decisions, then crowdfunding investment would work too.
For the experienced investors, crowdfunding represents a chance to get in on the next big thing at the ground floor in a more objective way. But, if an experienced investor is on the lookout for something specific it could just pop up on a crowdfunding site, giving them the opportunity they want, without any emotional plea involved, however well-hidden it might be.
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