Investment Guide For Crowdfunding Newbies

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Written By Hossein Soltani

First time crowdfunding investors can pick up some top tips from a new guide published by leading platform Seedrs.

Jumping on the popularity of equity crowdfunding for businesses, the online investment platform wants to help new investors manage their money.

Marketing director Alysia Wanczyk introduced the guide in a blog.

“Investors often believe crowdfunding is a lot more complicated than it really is,” she said.

“In the past, investing in start ups was the domain of business angels and venture capitalists, but now the market has shifted and a lot of smaller investors can compete on a level playing field with the big boys.”

Tips for start-up investors

She also explained that businesses and investors both gain from equity crowdfunding as the funding eases cash flow for the company and can lead to growing wealth for the investor.

Her tips for investors include:

  • Don’t invest cash you can’t afford to lose

A typical start-up crowdfunded investment ties up money for at least three years and possibly from five to seven years. Many start ups fail and investors could lose all their cash.

  • Diversify your crowdfunding cash

Investment advisers always suggest not putting all your financial eggs in one basket – split them between companies in different sectors.

The average Seedrs investor has cash in nine businesses, although some have a stake in more than 100, said Wanczyk.

  • Don’t expect quick profits

Crowdfunding a start up is different from buying a stake in a fund which can be sold quickly if it fails to perform. Crowdfunding shares are difficult to liquidate and investors are in for the long term.

Many do not pay dividends and investors may have to wait years for a return, typically when the business goes public and shares are sold on.

  • Plan an exit

The right time to consider an exit is at the start of the investment – think about how the business plans to repay you money and when before you invest

Don’t rush where angels fear to tread

Wanczyk also explained that new crowdfunding investors have no need to rush to buy shares in start-up companies.

“Take time to assess the marketplace and how the business works before parting with any cash,” she said. “Investing should be profitable and fun, so don’t stress yourself financially.”