Crowdfund Investing For Dummies
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You need to apply some common-sense tactics to avoid being swept up in your crowdfund investing enthusiasm. You need to protect yourself from making bad decisions, and you have the means to do so if you just slow down, employ your gray matter, and take some additional steps.

  • Make sure you actually understand the business or project. Okay, this is really fundamental. After watching and reading the pitch materials, answer these questions:

    • Do you understand exactly what the product or service is?

    • Can you easily describe what problem this product or service solves for a person or a business?

    • Who is the customer for this business?

  • Ask whether you would really buy this product or service?

  • Discuss the opportunity with people you trust. Rushing to buy anything — especially stock in a company — is never a good idea. You don’t necessarily want to wait for weeks or months to buy a stock; after all, crowdfund investment campaigns don’t last very long (30 to 90 days, generally).

    However, you should take enough time to talk with trusted friends or colleagues who will either give you outside validation or ask helpful questions so that you have a second opinion about the quality of the investment and whether it’s right for you.

  • Read the crowd feedback online. Crowdfund investing is an online activity; the business owner or entrepreneur must use an online funding portal, and he reaches out to potential investors almost entirely online via social media. Of course, this means that you’ll find potential investors discussing online the owner, the business model, the product, the financials, and anything else related to this opportunity.

    And that’s a good thing; crowdfund investing as a whole can only benefit from vibrant, active crowds that parse these opportunities and determine which are worthwhile and which aren’t.

  • Avoid impulse buys. Do not buy stock or invest in crowdfunded debt on impulse. Period. You are not buying an ice cream cone here, or even an exercise system you see on late-night TV. You’re making an investment, and you should take it seriously. Making an impulse buy will almost certainly lead to regret.

About This Article

This article is from the book:

About the book authors:

Sherwood Neiss, Jason W. Best, and Zak Cassady-Dorion are the founders of Startup Exemption (developers of the crowdfund investing framework used in the 2012 JOBS Act). They deeply understand the process, rules, disclosures, and risks of capital formation from both the entrepreneur's and the investor's points of view.

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