What Investors Need to Know About Crowdfunding

Crowdfunding has changed the way investors are able to approach investing. Crowdfunding platforms have provided a place where investors can connect with entrepreneurs and inventors. While this platform may make it easier and even more enjoyable to find potential investment opportunities, it still leaves much to the unknown.

For example, which equity crowdfunding platform should investors watch? Are some better than others? How well do these platforms vet the projects and those launching the projects prior to letting them go public? While there may be arguments that these factors don’t really matter, many feel it is important to know if the platform itself has a reputation of promoting successful projects or projects that fall a part after the campaign. The quality of these results will reflect the quality of the projects they allow to launch in the first place.

For example, CircleUp has tracked the success of companies following their equity crowdfunding campaigns. They found that companies that used their equity funding platform had an 80% average revenue growth year over year. Additionally, companies they have worked with experienced an increase of 34% to 39% in their average gross margin expansion. While not all crowdfunding platforms offer these kinds of statistics, they reveal the success earned by the companies they choose.

It is also important to stay up on the changing regulations concerning equity-based crowdfunding. The SEC has been quick to create a detailed report of over 500-pages with all the regulations pertaining to these platforms. As these regulations grow and evolve understanding them will be essential to the growth and success of equity investing.

Even if an investor chooses a crowdfunding platform that asserts they fully vet each project and individual involved, it is still important to do independent research prior to investing in someone’s idea or company.

While seasoned investors may feel this is common sense, this type of crowdfunding has opened up investing to an entirely new group of people, who may not have really invested before. It is important for all investors to fully understand what they are getting into before they put their money down.

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