Wednesday, March 07, 2018
Getting Started in Crowdfunding Investing
For a bit over a year, federal law has permitted just about any John or Jane Doe to invest in Business Start-ups or expansions, an activity usually reserved for the wealthy or "accredited investors." Today, often in increments as low as $100 to $500, individuals can get in on the ground floor of a new venture. These investments may take the form of actual stock equity (which can not be easily traded or sold, and are not listed on a stock market); convertible notes (loans which convert to equity, or stock, if certain conditions are met); and revenue sharing, which acts as a loan paid back not over a specific time period, but as a function of the revenue received by the company. The goal on these revenue sharing agreements is to pay back the investor anywhere from 1.2 times to 2.0 times their investment (although I have seen one shooting for 3x investment).
And of course, like any company, all investment is at risk and you could lose everything. No one, of course, is hoping for that, but it is a possibility.
All of the platforms below are simply web-based platforms designed to 'match' potential investors with companies seeking to raise funds. Once the investment is completed, the investor deals directly with the company they have invested in and the platform has no further intermediatory role between you.
Each Platform, with small exceptions, is structured, visually, in a fairly uniform format, so getting familiar with one makes the next one easier. In no particular order, the five that I have found easiest to use are these:
1. START ENGINE - This is the largest of the five I am including. s of this date, 68 active companies are listed, representing a broad variety of industries. They provide an excellent, clear tracking of the status of your investments during the process, and are active in sending emails announcing news and updates. If you need to cancel an investment, they are efficient and no-hassle. Each company has a very visible "Terms" button which explains clearly what kind of investment is being offered, with some minor exceptions. Unlike many platforms, they actually permit the use of credit cards (Use with Caution!) to make investments.
2. NEXTSEED - Next Seed is small (7 active companies), with a heavy emphasis on "mega-bars" and drinking/entertainment venues. Of all the platforms, it provides the *clearest* indication as to the 'terms of the deal' and the hoped-for returns. The Chat function with the platform is efficient and helpful.
3. WEFUNDER - Another large platform, there are 45 companies currently raising funds. There are an excellent set of FAQs for new investors that should be read thoroughly. The site features many tabs to search for precisely the type of company you wish to invest in (tech, main street, software). On the down side, the terms of each deal are not big and bold: they are printed in fine type at the bottom of each company's icons in just a word or two. By clicking on a company icon, you can see the terms in more detail.
4. MICROVENTURES This is actually a partnership (not entirely explained) using First Democracy FV as a bridge between Microventures and Indiegogo, a respected company which adds some credence to the viability of the fundraising companies; there are 7 companies currently listed. Some of the companies have very clear terms of the deal, while others take a little more digging.
5. FUNDANNA - Whereas many crowdsourcing platforms steer away from start-ups involved in the cannabis industry, Fundanna focuses on such companies. The 6 companies listed have *very clear* terms, and have done a good job explaining their business plans and approach to their businesses, with extensive information for the investor. One gets the impression that Fundanna is a small operation: the website has a few glitches, and is not entirely intuitive, and the chat function is not always on...but when responding to email, it is clear that they are giving highly personal responses rather than pat answers. One nice touch is that they actually accept old-fashioned checks in addition to bank withdrawals for payment.
I have used all five of these of that platforms, and will continue to do so as I seek to diversify my investments, which currently include a race horse, a vertical farming operation, an organic dairy, a cannabis growing facility, a boxing club, a Brazilian liquor company, and a sports bar.
In addition, some states have set up Non-profit platforms (Such as MILKMONEY VT) to assist local in-state businesses, and which are often only open to in-state residents.
Happy Investing! Be smart and be cautious, but know that you CAN get in on the ground floor of the "Next Big Thing!"