There are lots of people who actually have some cash and are really interested in investing in new and exciting ideas. For them, crowdfunding provides an excellent opportunity to invest in something exciting.
But, it is your hard earned money, and you don’t want it to waste it by investing in something which is not trustworthy. So this article will help you assess the risk and advantage of investing in crowdfunding sites.
How do crowdfunding sites work?
Crowdfunding sites basically work as a mediator that engages with the investors and entrepreneurs. The entrepreneur proposes a planned project and describes how it will make profit, or how the service is worth investing in and that’s where investors like you come in. You can invest in the business for a particular profit or getting that service before anyone else.
There are mainly three types of crowdfunding.
- Donation based: Mainly you donate money to a charitable firm for a worthy cause
- Reward based: Certain reward is promised for investment made
- Equity based: By investing, you can become a part of the company and receive profits.
How safe is it for investors?
First thing first, crowdfunding can be a very risky business. Basically, you are investing in a start-up company, and they have a high risk to fail. Also in many cases, there is no guarantee that you (the investor) will receive a return. And in most cases, we have seen, though there are some safety checks; the crowdfunding site does not take the full responsibility in terms of the risks associated. Most of the start-up businesses fail, so there’s a huge chance that you might end up losing your money.
Besides, even if there is a success, the profit may be diluted due to the huge amount of shares. So the profit retained can be too small compared to the risk taken through the investment.
This investment medium is still not mature enough to be risk-free. So you are bound to get less support and information. Usually, it takes a long time for a company to make some real cash that means you will have to be patient about receiving any real monetary value.
But real government bodies and responsible organizations are starting to work on this investment medium to make it safer. One thing is clear that this will take more time in reality.
Notes for Investors
In case you want to invest for a good monetary return, you might go with equity based crowdfunding. But depending on what kind of return you want, you can invest in other types too. The investment scheme is based online, and many renowned companies enlisted themselves on crowdfunding sites. Lots of start-ups were also tremendously successful, e.g. Bragi (raised $ 3.4 million).
Despite risks and deregulation, it is proven and possible to make some good profits by investing in crowdfunding sites. You have to be very cautious and knowledgeable about investing in this platform. Make sure you understand the whole procedure of the business in which you plan to invest, and how will you receive the profit.0