Evaluating the risks and rewards of small business crowdfunding

Posted on Posted in Accounting, Crowdfunding, Real Estate

I’m now loosely tracking 17 activity different US-based small business crowdfunding portals. This excludes all the portals intended for personal or charitable crowdfunding that would bring the total to 31. The number of investment options continues to grow and the field continues to grow more complicated. The risk to investors remains high and grows in step with the expansion of choices and the number of offerings available to investors.

What can investors do to better analyze and understand the risk of a small business crowdfunding deal?

The current issue of US News and World Report had this good advice:

“Ask yourself if the deal structure and company are transparent, with no smoke and mirrors,” he says. “It’s critical to thoroughly understand the structure of the deal you’re considering. If the investment team can’t explain the deal or the company’s operations in a way that you can’t understand, don’t invest.” Robert Kantor, co-founder and CEO of Headwater Capital was specifically speaking about real estate crowdfunding but the concept applies equally to all other types of deals.

This warning in US News echos the comments I’ve put here on my blog in earlier posts. The starting point in any successful crowdfunding deal is always solid strategy, communication and financial accounting. Check out all three before investing.

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