Most of us love the idea of crowdfunding. Let’s face it, who wouldn’t have loved the opportunity to invest into Google, Facebook or the many other ventures to come out of Silicon Valley? All of us… but the technology wasn’t there to allow us to do so.
But now it is! And the next Google or Facebook could right this minute, be listed on one of the growing number of global crowdfunding platforms. More importantly, maybe you think you have spotted it?
So, what do you do? Quite rightly, you set about doing your own due diligence on the company. And that’s great. But have you also done your due diligence on the platform that’s promoting the company? Here are the first questions you should ask about a crowdfunding platform, before you invest through it.
Is the platform authorised and regulated?
This is the first thing you need to check. If a platform is not authorised or regulated (in the case of the UK, by the Financial Conduct Authority), walk away.
Only companies that are authorised and regulated can work in this space. Those that are not, are operating illegally and afford no protection to investors.
Does the management team have the expertise and experience in the required niche?
If a platform claims to operate in a specific area or niche, its managers and directors really should have the relevant skills and experience from that sector.
Not only should they have a background in crowdfunding or venture capital, they should have a background in the niche they are claiming to be experts in. A quick background check and online search will give you all the information that you need, such as sector involvement, skills-set, and previous experience.
On the website, you should also find links to their social media accounts. Have a look at their various profiles to get an idea of how successful the platform has been and who its key people are.
Are they experienced crowd-funders?
This may come as a surprise, but many platforms expect money to start flowing in without doing the necessary marketing and networking leg work.
Seasoned crowdfunding platforms know their niche and have built up a wealth of experience in their respective fields. They know that the real work begins well before an opportunity is placed on their platform and they should generally have a venture part-filled, through their own investor-networks, before it is put to the crowd.
Have they actually done what they have said they’ve previously done?
The platform you are about to invest in has all the bells and whistles, with a testimonial page, showing the numerous people and companies they have helped. Sure, they would say that, they want your money.
Do a bit of online snooping to verify their claims. Some platforms claim to have raised millions of pounds or funded dozens of companies. Check around and make sure what they are claiming is real. Some platforms have been known to exaggerate the number of enterprises they have funded or the amount of funds they’ve raised.
Most importantly – Are their investors happy?
This is the key to a successful crowdfunding platform. Has it made money for its investors and are the investors happy? Check online forums and bulletin boards for complaints. If something is amiss, it is bound to show up here. A quick comparison with other platforms will tell you how they are performing compared to their competitors.
Investing in a crowdfunding platform is a good way to get involved in early stage businesses, but make sure the platform you are investing through is legal and genuine.
You might be able to afford to lose a few quid, but money from several hundred investors would make for a tidy amount to scammers.
That’s why it is important to know that you are investing via an authorised platform that has its investors’ interests at heart, first and foremost. That’s why it’s important to do your due diligence not only on the company you are looking to invest into, but also the platform you are looking to invest through.
By Jason Kluver is COO of Shadow Foundr the Private Investor network and equity crowdfunding platform