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 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.
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.
On equity crowdfunding portals and platforms, you will have an opportunity to collaborate on deal selection and due diligence with other investors. Like social networks, the portals/platforms will show profiles of the investors who participate in these discussions, so you can assess their expertise and credibility.
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.
Supporters of crowdfunding acknowledge that some fraud will probably occur, as it does everywhere—including the public securities markets. But they point to the low instance of fraud in rewards-based crowdfunding in the United States, and in equity-based crowdfunding in Australia (since 2006) and the United Kingdom (since 2012), where unsophisticated investors participate in private securities 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.
Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012 allows all investors, regardless of income or net worth, to invest in startups and growing private companies via funding portals that are registered with the Securities and Exchange Commission.