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Crowdfunding for New Investors

July 22, 2016

Read Time: 10 minutes

In its first 5 years, Shark Tank pulled in an average viewership of 6 million. The show promotes innovation and helps young entrepreneurs who are hungry to succeed. With its success it’s also created two big aspirational goals for Americans to strive for: running your own business and becoming a successful investor. With the launch of Regulation CF, you would think that same fervor would translate into Americans making a big splash in investor crowdfunding. While startups raising capital under Reg CF have seen over $1,000,000 in funding, we wonder if the rest of America will catch on. Is it lack of awareness, or a lack of confidence?

It’s most likely the latter. Many Americans talk about being successful, but the lack understanding of basic financial planning sets many up for failure. While talk is cheap, there doesn’t seem to be a lack of effort. Citizens clamoring for schools to adopt financial curriculum, along with the 6 million subscribers to Reddit’s personal finance section, shows that people are hungry for information. While we can’t offer personal advice on how to fix your finances, we can provide some helpful tips to get you started on your path to investing.


Create an Investment Pyramid:

At a young age, we were taught the basis of a healthy lifestyle relied on what we ate. By studying the food pyramid, we were given guidelines of how to lower the risk of sickness through a balanced diet. Some people might use that same approach to help lower the risk of their investment portfolio. By leveraging an investment pyramid people can gain a better understanding of their financial health, which will be the basis of how they invest their money in the future. While personal research is important, it’s also important to consult the experts. Getting in touch with a qualified investment advisor in your area is a step in the right direction.


Be Willing to lose it all:

Once you get your strategy in place, be prepared to lose all your money. While financial planning is important, it doesn’t make you immune to bad investments. Cashing out on a unicorn sounds appealing, but those success stories get many people in trouble. Startup funding is one of the riskiest investments you can add to your portfolio. According to the U.S Census Bureau, the five year survival rate for startups is 50 percent. If you don’t look at the big picture, putting all your money into a flash new tech startup could spell disaster. Seasoned investors know the pitfalls all too well, and have developed a strategy distributing small amounts of money in a large number of startups to try to improve their likelihood of success. Just remember, there is no proven strategy on always seeing success, but there may be opportunities to mitigate risk.

“If everyone jumped off a cliff, would you?”

Personal knowledge is putting together a good strategy, and that’s why seasoned professionals stress the importance of understanding the business you invest in.

Tech investments are popular and abundant these days, but those traits don’t translate into sound investments. It may seem counter intuitive to stray away from the crowd mentality in an equity funding round, but you should have a good understanding of your personal risk tolerance and investment objectives before making your own judgement. It is important to make it a priority to understand every angle of the business and their environment. One positive side to equity crowdfunding is the diversity of opportunities you can evaluate and potentially invest in.

If we’ve learned anything so far, educating yourself and learning from professionals is important in forming your strategy. As you get closer to making a decision on your investment, you would also be well served in getting first hand detail on the business model. For example, equity platforms, like FlashFunders, allow you the opportunity to speak to founders. Before reaching out, think about important questions you want answered to help make your decision. You can use questions that VC and Angels as a resource to understand what important questions that might be prudent to ask.  

Leverage Your Network:

Talking about money is still taboo in our culture. Whatever your reservations are, you should consider that being new to investing puts you at an immediate disadvantage. You can gain a vast amount of knowledge from books and articles, but you can also help yourself by going straight to the professionals. Experts in any field offer intricate knowledge of the space, provide useful landmarks for advancement, and offer helpful tidbits on what to look out for.

Just remember, what works for one person may not work for another. You can incorporate key takeaways from investment veterans, research, and a personal advisor to form your own unique strategy. By doing this, you hold the keys to your financial future.


Investor Crowdfunding

With Regulation CF being just over 2 months old, understand that your risk increases. Most startups currently raising capital need more funding than traditional crowdfunding can offer, and are not at the stage of attracting venture capital. For the time being, you won’t be seeing the same deals that Venture Capital firms and Angels are seeing, but that does not necessarily take away value from the companies currently raising capital.

If you’ve gotten this far, then you are preparing yourself to get in the game. Before you get out there, feel free to use our platform as a source of education for equity crowdfunding.

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