Can You Profit From The Crowdfunding Fever?

Having worked with boot-strapped start-ups for the last while, I can’t begin to explain how important getting funding is. That being said, funding small companies isn’t just benefitting the companies, but it also benefits the funder.  Crowdfunding is the next big thing in the investment world as it allows everyone to become an investor from the onset. 

Do you want to be a high risk investor and hold a portfolio of several innovative startup companies? You don’t need millions to do this anymore. I’m not kidding. I have invested in quite a few really innovative projects including an incredible long-lighting solar lamp, a crowdfunding platform for mobile apps, a couple of mobile apps through another platform, an urban farm in Netherlands… I have to check my records to see if there’s something else. And all this I’ve done with about a thousands bucks or so.

But I am sure you are not that surprised. Unless you live in a cave you have already heard about crowdfunding. Everyone can invest in start-up companies, support ideas, and make money.

What are the options?

Everyone knows about the “reward based” crowdfunding. This is how sites like Kickstarter work. You like a project, you give some money and get some reward. The reward is often just a “thank you” letter or sometimes it might also equal a pre-order of the product or service at a promo price. This is not investing. It’s great to support ideas you believe in, but it won’t make you money.

Quarter and Penny

So, what are the options to actually make money from crowdfunding? At this time mostly two:

1. To invest in equity-based crowdfunding opportunities. The most popular platform that allows this at the moment is Symbid, based in EU. Hopefully from 2013 equity-based crowdfunding will be legalized in USA and this is when a lot of other platforms will pop-up. This is like buying shares in a start-up company – i.e. being a real early-stage high-risk investor!

2. Pre-order in bulk and profit from retail sales. This is how sites like Appbackr (for mobile apps) and Ideacious (for real tangible products) work. You buy in advance thus helping the company of the independent developer to release their product to the market. Once the goal is reached you start making money. Another great option is Rockethub, a great resource for creatives.

You can invest in most of these platforms with very little money – sometimes less than $20. This is really an opportunity for everyone.

Is it really that cool?

It’s all fun and games until you start losing money. It does happen. A lot of the apps and projects will never make it to the market and you don’t have any protection against this. Others will simply not sell well like one of the mobile apps I invested in for example.

Crowdfunding is very exciting and easy to get started with. But this shouldn’t make you think it’s safe or profits are guaranteed. In fact the low entry barrier to start a crowdfunding campaign attracts a lot of entrepreneurs who don’t really have any experience. Many don’t even have exact idea of how they will do business once their project is materialized.

So you have to do your due diligence and be prepared for the risks. Early stage investing is always high-risk. It doesn’t matter if they call it seed funding, venture capital investing or crowdfunding.

What’s the future?

The future is in general bright. Crowdfunding will bring a lot of great and not so great ideas to life. It will make money to many small investors – people like you and me who decide to support ideas they believe in.

But I expect also some major con artists will use the crowdfunding platforms to collect money for projects that they don’t even intend to bring to life. It’s just quite easy to put up some pictures and videos and pretend you are working on a great invention. You’ll have to use at least some common sense before investing in ideas that look too good to be true.

Get crowdfunded yourself

So far I was talking only about crowdfunding from investor’s perspective. But don’t forget you can profit from it while being on the other side. (No, NOT on the side of the con artist please!) But if you always had a dream to start some great business and never had the money, now what? Guess what – you have no excuses anymore! Start a crowdfunding campaign and let “the crowd” fund your project.

A guest post by Tony Clifton

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Comments

  1. says

    That’s awesome. My brother will benefit from this if it’s approved in the US. As a small, quickly-growing business operator, he’s always looking for investors even though he has a solid operation and a good business plan.

  2. says

    I didn’t know about crowdfunding for apps and startups, and while I understand the high risk and the possibility of losing money, is there a minimum background check made by the crowdfunding site to make sure the person is legit and not a con artist? It could be very easy to say “I will create an app about this and that” and then “sorry guys, it didn’t work”.

  3. says

    Minimum background check, yes – but I wouldn’t rely on it. One can always deliver *some* kind of app or project and avoid being called liar, regardless how low quality the product is. So, play careful and do your own DD

  4. says

    Nice post and very interesting. I had heard about it and knew the basics, but not in depth as you explained. Just like with any investing, knowing as much as you can is key and make sure you’re comfortable with the risk.

  5. says

    It will be interesting to see how crowdfunding works if it is approved in the U.S. It seems that there is a high risk of fraud, but maybe they can come up with a way around that. If I were to do any crowdfunding it would be a very small investment.

    • Marissa says

      I feel that you have really watch and research what you invest your money into. Then again, The Oatmeal crowdsourced a ton of money and people knew that it wasn’t going to anything productive.

  6. says

    Nice post and very interesting. I had heard about it and knew the basics, but not in depth when you explained. Just like with any investing, knowing as much when you can is key and be certainly sure you’re comfortable with the risk.

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