Equity Crowdfunding: Six Things a Startup Investor Can’t Control

Irrespective of how splendid, sexy-looking a venture opportunity looks, there are certain boxes that you should be ticked and checked before investing your hard-earned cash into any kind of equity crowdfunding scheme.

Investing in a new business is not a joke and absolutely not for the weak-hearted. You need some level of insight, market knowledge, persistence, and an appetite for risk.

Here are six things that you should know before putting resources and funds into a startup.

1. Invest in a sector you may know

Simply put — if you don’t understand the property sector, don’t invest in any startup that has something to do with property, regardless of the possibility that the firm is hyped to be the next big thing in that field. But if you cannot resist the specific investment opportunity, find out about the business first before putting your money on the line.

Make enquiries of individuals who are specialists in a specific area. The ideal approach to lessen the investment risk is to fathom out the market a start-up will serve.

2. Become more acquainted with the founders’ reputation

For a startup company, the key personnel and/or founders running the show are vital to its success. Usually, a newly launched product doesn’t always hit its objective immediately. It would need to undergo different phases of development and refinement before being accepted by consumers with open arms.

Some business visionaries tend to struggle to know what their customers may want and may need to adapt and change things around and digress a bit. Individuals who have the experience and abilities to respond to such constructive criticism are probably going to be more successful in getting the backing needed and get back on track.

Individuals with a solid business understanding are adroit to handling such situations. When drilling into the founding team’s reputation, understand the past companies, the team members launched or worked for, their education, and the value they add to the group.

3. Try not to invest in a solitary startup

Invest in a few new companies and spread the risk around a little. This will help moderate your risks and maximise your outcome for success. If necessary, put in smaller amounts in various companies to give yourself the best opportunity and optimise your return on investment (ROI).

4. Understand equity crowdfunding

This is particularly essential if you have never invested in new businesses. By joining investment platforms, you will become more acquainted with the different deals and opportunities around and discover what makes a good deal. Keep in mind any investment made ought to be supported by solid knowledge and with clarity to your own personal risk.

5. What does the income plan resemble?

Without an unmistakable income path, supporting a business fiscally is unrealistic. It doesn’t make sense to put resources into a startup if you don’t know how the firm will scale up and make profit moving forward. You do not want to end up cash-flowing a company without a clear and understood business plan.

6. By what means will the investment funds be utilised

As an investor, it is important that you understand why, how, and what the startup proposes to do with all the cash raised. The ability to deal with funds right, says a lot about the business person’s abilities and vision.

Likewise, know how much employees will be paid as salaries and how much cash the founder will bring home. Besides, find out beforehand if the cash raised will be adequate to fulfill milestones to bring the company into benefit or help it raise more money.

Equity crowdfunding is a higher risk level of investment with little or no security and certainly can not be provided with any guarantee in place – your capital is at risk.