Crowdfund Investing: Evaluate the Pitch Video and Pitch Information
When you invest in a more traditional financial vehicle like a mutual fund, you depend on other people to tell you what to expect. If the people running a crowdfund investment campaign are doing their jobs well, you should be able to pretty easily put your hands on information that can help you anticipate what to expect from your investment. But seeking out that information is your job; no 72-page prospectus is going to magically appear in your inbox when you express interest in a certain campaign.
You need to do the legwork.
Watch the pitch video
The pitch video that the entrepreneur or small business owner creates is your window into his business concept and plan. You can find this video by visiting the particular online funding platform that is hosting this person’s investment campaign. Watching this video is your opportunity to hear this person’s passion and drive. It also gives you an idea how the business owner’s mind is organized.
View funding pitch videos only on SEC-approved crowdfund investing sites. The SEC wants to insure that you have access not only to the video but also to the complete information about the company’s offering, which is available on the same website.
If the pitch video is scattered or wishy-washy and doesn’t really say much of importance, chances are the business itself is going to be disorganized and lack focus. After all, the entrepreneur or business owner should be well aware that the pitch video is his opportunity to sell everyone on the business. If he hasn’t put a lot of time and energy into organizing it, this dearth of effort should be a major red flag.
On the other hand, a pitch video that is well thought out should give you a good sense of who the entrepreneur is, what kind of team he has created, and what his business model looks like. It doesn’t have to be an Oscar-quality video to achieve these ends. The content is what really matters, and that content should include how investors’ money is going to be used and why this entrepreneur is the right person for the job.
Pitch videos shouldn’t be longer than five minutes, so don’t expect a video to contain every bit of information you need to make an investment decision. Instead, consider it an advertisement that either piques your interest in the entrepreneur and the business or turns you off completely. The detailed pitch and financial information allow you to really dig into the business plan.
Read the pitch information on the company page (and ask questions)
You should be able to locate the meat of the business model on the same funding portal where you find the pitch video. The entrepreneur or business owner should provide the equivalent of a business plan’s executive summary, which contains about three pages of information on the entrepreneur, her team, her competitors, and the business model. As you read this information, take notes and consider what questions you have.
If, after reviewing all the available information, you still have unanswered questions, you need to reach out to the entrepreneur or business owner directly. The online funding portal provides discussion forums that allow you to do just that. Don’t be shy about asking questions, especially when the answers will help you determine whether to spend your money. Instead, assume that you’re doing a community service here; if you couldn’t find all the answers you were looking for, chances are other potential investors are in the same boat.
Watching how an entrepreneur answers your questions gives you a very good glimpse into how she will relate to her investors after the investment campaign reaches a successful completion and she is growing her business. If questions are left unanswered in this phase, you may assume that you’ll have a hard time getting information from the entrepreneur down the road. (If the entrepreneur is busy now, just wait until she has launched her business!) This person needs to demonstrate that she can manage her time effectively, and this question-and-answer interaction is a good window into her time management and communication abilities.
If the campaign is for an existing business and the business owner is looking for growth capital, the executive summary information should feel quite solid. After all, this person isn’t just speculating about what the business will look like; he’s in the midst of it and should know the company’s strengths and weaknesses and its competitors. The pitch information section should address why this company is better than its competitors and how it’s going to overcome any existing weaknesses.