Crowdfunding has become a buzzword. It is now the most popular way for attracting investors in investing in startup projects.
Even real estate agencies are utilizing the wonders of crowdfunding to jumpstart their progress. But as an investor, these buzz opinions, and sugar-coated headlines may appear bogus to you.
But that is not the case. With some careful assessments, you can easily spot which crowdfunding campaign is worth investing, and which ones are best to be avoided. In this article, we will take a look at those considerations.
Is crowdfunding a good investment?
Let’s answer the big question first. Is crowdfunding a good investment? Actually, yes. Crowdfunding is indeed a good investment. It has many advantages that outrun other investment opportunities.
First, take a look at how much you will need to invest in a crowdfunding campaign, compare it with your traditional investment opportunities. You will see that crowdfunding investments require a relatively small amount of funds for investment.
On the other hand, it may also give you unexpected high returns. That is if you have invested in a campaign that offers equity in return.
A high amount of return compared to the amount of investment is always a good investment. SO undoubtedly crowdfunding is a good investment. But that does not mean that all crowdfunding investments are good investments. Some can turn out to be the worst. If you manage to spot those and stay away from them, then crowdfunding will indeed be a good investment for you.
Things to consider (5 factors)
We have learned that crowdfunding is a good investment. But we have also learned that there are some really bad crowdfunding investments out there. So how do we differentiate the good from the bad in crowdfunding investment? You can do that by evaluating the following factors for each crowdfunding investment.
The first thing you can do is check the documents of the investment. Investment is no small deal. Everyone wants to invest their funds in sound investments. And how do you know which investment is sound, and which one is not?
By evaluating their documents. This brings the question of transparency. So, will the campaign share its documents with you on request? They should, otherwise, you can easily assume that there is some mistrust going on here and it is better not to invest in this crowdfunding campaign.
On the other hand, let us guess that they are humble enough to let us peek into their document and business model since we have shown genuine interest in investing. In this case, there is a question of validity. That can be solved with auditing. Ask for auditing evidence.
Now whether their data is acceptable to you or not is your decision to make
The Campaign runner
The campaign runner. He/ she is responsible for the development of the crowdfunding investment and is also responsible for which direction this campaign will turn. We often overlook the campaign runner’s importance in crowdfunding. You shouldn’t, especially for crowdfunding investment.
Check the background and past experiences of the campaign runner. Are there any controversies? If the campaign runner had any trouble in abiding by the rules of investment, then there is a high chance that he/ she might fail to follow them again.
You can also take up the extra effort of interviewing the campaign runner and test his knowledge of how to do crowdfunding, and if he knows the new laws. This will give you a clear idea of his intelligence and capability of running the campaign and get you your investment returns.
The minimum amount of investment
The next thing you should consider is the minimum amount of money that needs to be invested. Crowdfunding investments became popular because of reduced minimum funds for big investment projects.
The funds required for crowdfunding investment are usually less than $10,000. But we would suggest you keep high alert when a campaign asks for more than $5000.
Regardless of how much they ask for, compare that with the promised reward. You are more likely to invest in a campaign that offers equity. But some provide personalized items. Just make sure that they are worth more, or equal (for break-even investment) to what you are investing.
Risk is one of the greatest factors an investor should evaluate when investing. You cannot just go and invest in a project that offers high returns. Many factors can affect the amount you will receive as your return. And that is what we call investment risks.
We certainly cannot predict the future. However, we can come up with some possible predictions. For example, considering the records of the campaign runner to predict the success of the campaign. Using financial and economical factors to calculate returns.
You can contact a Finance advisor to evaluate these factors. This will help you assess the risk of investment. Based on the amount of risk, you can decide whether to invest or not.
A lot of us often ignore this factor. Public opinion. Some may suggest that public opinion is nothing but a disturbance. But they are wrong.
These are crowdfunding investments that we are talking about. It is all about public opinion. If the people like a project, they fund it and it becomes successful. If they don’t, they don’t fund it and the campaign fails.
So, whether a project is going to be successful or not is partially dependent on public opinion. You can talk with some people and investors to ask for their opinions. Then you can make a solid decision of investing or not.
So those are the things that you need to consider for making a sound investment in crowdfunding.
Again, we would like to point out that crowdfunding is a good investment as long as the return justifies it. To predict the return, you will have to do some digging and researching about the campaign.
So, keep a finance expert and a lawyer on board to help you make a proper decision.