How to start Equity crowdfunding Investments? Its basically the same thing as venture capital and private equity investing, but on a bit smaller scale. Instead of one venture capitalist investing millions of dollars in a company, there are potentially thousands of investors investing smaller amounts pooling their money together to raise money for a company. So with any investment there are pros and cons. Can investors make big money with equity crowdfunding investments?…well it depends.
Seasoned Venture Capitalist
Seasoned venture capitalist and private equity investors lose money all of the time. In fact for some they lose majority of the time, making their money on the few big hits they do make. Many sources indicate that venture capital firms can see returns of anywhere between 3x-10x the initial investment. Before equity crowdfunding this type of investment was only for the wealthy. Currently non-accredited investors are not allowed to invest in these risky equity crowdfunding investments, with a few exceptions of course, for example if the non-accredited investor was investing in a friends or family venture this would be perfectly legal, although may make the startup companies lawyer cringe at the thought.
To determine if equity crowdfunding investments are a good investment you should ask yourself these questions.
1.) When do I need this money back? – if you answer anything but never, equity crowdfunding investments and venture capital may not be the best investment for you.You should go for other investment option. You should not expect to see a return on investment for probably 5-10 years, and as most startup companies fail this 5-10 years would be optimistic.
2.) How much time do I have to do research? – Just like investing in stocks and bonds there are potentially hundreds to choose from. You will need plenty of time to conduct due diligence and research to help minimize the risk of the company you choose when making equity crowdfunding investments.
3.) What is my risk tolerance? – Similar to the question for when do you need the money back, are you willing to see the value of your equity crowdfunding investments swing up and down over the course of a few years? You will have to stomach losing your entire investment if even the slightest error comes upon the startup company you have invested in.
4.) Do you understand the equity crowdfunding investment? –Be sure to understand all aspects of the investment. For example do you know the companies exit plans, what is the pre and post money valuations, etc. These are key items to know prior to investing. If you don’t know find an expert in equity crowdfunding.
5.) What is your motive for equity crowdfunding investments? – Investing just so you can say you’re a venture capitalist will not be the right answer. You should be able to stand behind your investment and support the company. While making money should be the goal of the investment there are plenty of places you can go to make money. When making an equity crowdfunding investment think of ways you are helping the community, creating jobs, or creating something truly unique that will help the work for the better. It will be much easier to stomach your investment loss when you have alternative motives.
In conclusion, the professionals in the venture capital field win big and lose big. Sometime losing often. When it comes to equity crowdfunding investments make sure it is the right investment for you. Don’t invest just to invest, but have a solid reasoning behind your investment and make sure you are up for the high risk, but potentially outstanding return investment.