In the last issue I wrote about “crowdfunding” the new way that many small ventures and organizations are raising money. Before I tell you where you should be looking for legitimate opportunities, I think it’s worth your time to understand what you are getting into and what to look for.
Crowdfunding is nothing more than a money raising mechanism for to support someone’s ideas and dreams. That someone may not be you and more often than not, your hard earned money will not make the returns you thought it would. In many cases you may never see a dime of your money. Here are some ways to at least ensure that you have a chance.
– Research, research, research. After you read the pitch, put down the idea and start researching the principals. You should be able to find out all you need on-line by doing simple name and background searches. It may cost you $19.95 to pull up a full report on the guy pitching the deal, but it’s worth every penny. I can’t tell you how many times I have done searches on people and pulled up everything from criminal histories to pictures of the family dogs in less than ten minutes.
– Never, ever invest more that you can afford to lose. Treat each opportunity as nothing better than a lottery ticket. You can’t win of you don’t buy one, but buying one does not ensure anything but a long shot chance
– Make sure that the crowdfunding site you use has legitimate success in supporting valid deals. On-line chat forums are the place to go for this. There are reviews for everything on-line, including crowdfunding.
– Do not assume that a so-called “trusted site” is doing any more research than you are. Check out the facts yourself.
– Only invest in ideas you understand and believe in. Just because the money raiser is claiming that results of a certain technology will be outstanding, don’t put a dime in unless you understand the technology.
– Invest very small amounts across a variety of deals and know that maybe 10% to 20% of the deals you invest in will actually pay off
– Be ready to wait and wait. Deals will always promise a quick payoff otherwise why would you be attracted to invest quickly. But, in reality things take time. Often a start-up will take three to five years before you see a return.
– Be sure there is an exit strategy. It’s always easier to get in than to get out!
Here is a list of the top three crowd funding sites:
1. Kickstarter is a site where creative projects raise donation-based funding. It bills itself as the world’s largest site for funding creative projects. They have raised almost a billion dollars for more than 5 million people/projects since 2009.
2. Indiegogo approves donation-based fundraising campaigns for most anything — music, hobbyists, personal finance needs, charities and whatever else you could think of (except investment). They charge a fee based on money raised.
3. Crowdfunder is a crowdfunding platform for businesses. They are similar to a venture capital or angel investing network where people with ideas for start-up businesses, small businesses and social enterprises look for funding.
To your wealth,
Banker X.
