Useful Crowdfunding Tips from a Business Icon
If you are new to the investment game, seeking the advice of a professional is a wise decision. We are all familiar with the phrase, “a fool and his money are soon parted”, and to distance yourself from this idiom you should not only seek advice but exercise the recommendations accordingly. Although many people believe a “gut feeling” is the tell-tale sign of a winner, there is a vast disparity between the gut feeling of an expert investor and the gut feeling of a rookie. The expert will develop a gut feeling based on knowledge, experience and a full understanding of the market. The rookie typically develops a gut feeling based on emotion and will soon regret the decision – and be parted with their money.
A perfect example of this disparity is the ABC hit television show “Shark Tank.” The program features five wildly successful entrepreneurs who allow amateur entrepreneurs an opportunity to present their product and business pitch in return for an investment. The amateur entrepreneur usually has a figure in their head from the get-go, “I’m seeking $200,000 for a 15% stake in my company”, but the odds of the entrepreneur getting this exact deal are 1/100. Viewers at home may think, “Wow, this is a great product and idea. I would definitely invest.” But once the Sharks start asking questions, aka due diligence, they begin pointing out holes in the business plan, financial history, sales projections, etc. And once these details are exposed, the Sharks either renegotiate the original deal or refuse to invest.
The viewers at home, however, were ready to pour money into the company fast. That is, of course, the ones who are willing to admit their original decision to invest before the Sharks said “I’m out.” Experts = Sharks. Rookies = Viewers at home.
Equity crowdfunding will soon be open to all non-accredited investors in the United States and give everyone the power to be their own Shark. Although each entrepreneur won’t give you a private presentation, and you can only invest 5-10% of your total income, you will soon have the power to invest your money in return of equity – just like the show. And as the dawn of American equity crowdfunding gets brighter, the time to seek equity crowdfunding advice is now.
One of the original (and more polite) Shark Tank judges, Barbara Corcoran, is a real estate mogul and business expert with decades of success to her name. Barbara recently sat down with Forbes magazine to offer her advice on investing in startups as well as the risks involved with crowdfunding. Naturally, her tips for investing in crowdfunded startups were brilliant and worthy of sharing on our own truCrowd blog. Barbara advises first-time investors to:
- Trust your gut: “I’ve made money on every investment I made listening to my gut, and I’ve lost anytime I ignored it.”
- Do your due diligence: “It is essential to know who the company’s competition is, and how it compares. Ask for corporate tax returns, as all companies must provide at least this much.”
- Check licenses and registrations: “If it’s a legitimate business, it should have licenses from the city, county and state agencies. If it provides a regulated service, such as selling insurance or securities, state regulators should have a record of the licensure.”
- Pick up the phone “Call the company. You’ll get a clear indication of the level of professionalism… or not! Talk to an actual person working for the company before putting your money into it.”
- Understand how the money works “Don’t forget that your investment may be diluted by future offerings. Be sure to check on how much the company is hoping to raise, the terms of the sale, how the securities are being valued and how future transactions may affect minority owners.”
As I mentioned above, “trusting your gut” is an action only seasoned investors should employ. As a novice investor I would recommend researching companies based on a gut feeling and making your final investing decision based on the data.
With that said, and in accordance to #2 and #3, when you execute your equity crowdfunding research with truCrowd you will have access to all of the due diligence you need. Entrepreneurs must provide up to 150 documents including financial records, business plans and sales projections so all investors can perform extensive research before they pledge. You can also private message the entrepreneur to request specific data not in the offering.
Calling the company may be solid investing advice, per se, but in the case of equity crowdfunding advice we recommend you message or chat via the truCrowd portal. All entrepreneurs can host a message board where investors can ask questions or discuss the offering as a group. The entrepreneur can lead discussions, provide answers and ask their own questions to the crowd. Investors can easily see how involved the entrepreneur is in the offering and how much they care about their investors.
“Understanding how the money works” is another great suggestion and another capability of truCrowd. When you view an offering you will see the target capital amount as well as the percentage of equity being offered. Business plans and projections are mandatory for all entrepreneurs so all of your questions will be answered before you pledge.
Adhering to the equity crowdfunding advice of a multi-millionaire businesswoman is a judicious move considering she has filtered through thousands of investment opportunities. At truCrowd we were excited to read Barbara’s recommendations because we built our portal to satisfy important investing needs such as due diligence and open communication. We want our investors to be as enlightened as possible and her tips solidify the significance of the mandatory documentation we demand from all offerings. Everything she recommends (aside from the gut-feeling) can be satisfied on our platform.
Barbara has offered the investing world a slice of advice in which we should all consume and be thankful for. And if you get a gut feeling about a startup with no business plan or sales forecast, hopefully her slice of advice will turn your eager gut feeling into a sharp stomach pain before you invest.