Smart entrepreneurs, some Title III crowdfunding skeptics say, do not want hundreds or thousands of unsophisticated angel investors mucking up their capitalization tables, annoying founders with questions, suggestions, job applications, and—gulp—complaints.
Crowdfunded equity investments are generally illiquid for two reasons: (a) the one-year holding period and (b) the lack of organized secondary markets for Title III shares.
The business plan is one of the documents that issuers must provide to investors in Title III offerings. Here are the ten critical questions a strong business should answer:
This article takes a different approach from the previous one. Here I tell you about common omissions and mistakes in business plans, any of which should make you cautious about the company’s offering.
The first step in the seven-step crowdfunding investment plan is to calculate the maximum amount of money that you are allowed to invest each year in Title III offerings.
Spread out your crowdfunding investments, ideally 10 to 15 deals, over three to five years. Develop an equity crowdfunding budget for the coming 12 months. Be patient and select offerings that are most likely to result in strong ROI.
The first rule of investing is: diversify. The benefits of diversification—spreading the risk—apply not only to your overall investment portfolio (on a macro level), but to each asset class (on a micro level) as well.
When you start looking for offerings to invest in, look first in the industries where you have knowledge or experience; or look for consumer products and services that you are familiar with. Later you can consider offerings in certain other industries for diversity. Make sure you understand the basics of private securities: stock, LLC shares, and convertible debt.
Based on your preferences for industries, kinds of securities, and minimum investment, pick from a list or directory of funding portals and broker-dealer platforms that list suitable offerings. Review the intermediaries’ selection criteria and track records before registering.
This brief history includes rewards, donation, debt, and equity crowdfunding platforms in the USA, going all the way back to 2003.
Crowdfunding is a method of collecting many small contributions, by means of an online funding platform, to finance or capitalize a popular enterprise. Crowdfunding gained traction in the United States when Brian Camelio, a Boston musician and computer programmer, launched ArtistShare in 2003.
After you identify an offering that you feel optimistic about, review the terms of the deal that really matter—including price, equity percent, valuation, use of proceeds, liquidation preferences, conversion rights, etc.—and be sure they make sense. Then conduct due diligence, perhaps collaborating with or relying on other smart investors or a professional adviser.