Why You Must Make Your Crowdfund Investment in Cash - dummies

Why You Must Make Your Crowdfund Investment in Cash

By Consumer Dummies

When you’re ready to invest in a crowdfund campaign, you must do so in cash. Just as you can’t use a credit card to buy public stock on an online brokerage account, you aren’t allowed to use a credit card to make crowdfund investments either.

Why the restriction? For these reasons:

  • A credit card purchase can be disputed, which is an event that can interrupt the business funding process.

  • Using a credit card creates the possibility of a phantom transaction.

Think of the scenario from the entrepreneur’s or small business owner’s perspective: Before you can get a dime of the funding, the campaign target must be met or exceeded. Now suppose that you think you’ve hit 101 percent of your crowdfund investing campaign target. The celebration begins — you’re finally ready to move forward with your business!

You immediately begin placing orders for supplies you’re going to need in the first days of business operations. Then, after your investors’ credit cards are charged, you find out that 10 percent of them weren’t accepted. You’re back down to having met only 91 percent of your campaign funding goal, which means you get nothing until you raise the remaining amount. What a huge disappointment and frustration (and cash flow problem!), through no fault of your own.

This type of situation is also bad for the investor community. Investors like things to proceed in a tidy, orderly manner. Imagine being a member of this entrepreneur’s crowd and receiving conflicting reports: campaign completion one day and campaign restart the next day because of the credit card fiasco. To avoid the potential for chaos, the ban on credit cards makes perfect sense.

Bottom line: A credit card won’t fly when you’re making a crowdfund investment.