8 Smart Tips to Choose a Perfect Crowdfunding Platform

Crowdfunding has not only become the talk of the town but also the word of the year ever since President Obama passed the JOBS Act. Although crowdfunding is a new concept but it is also one of the fastest growing business setups. As a basic concept of crowdfunding, it is the process of raising small and large money contributions for a special investment cause. These may include property investments, fundraising for social cause, and investment in stocks.

It could be quite difficult for beginner entrepreneurs to choose a platform for investing or raising funds for their business. Here are 8 smart tips to choose a crowdfunding platform to make highest returns on investments.

Tip #1: Choose Matured Platform

According to the crowdfunding platform model, there are five stages of the growth of crowdfunding platform.

  1. Idea: This type of platform is in the beginning stage. The crowdfunding platform may or may not be run by experienced professionals. The risk level is highest at this stage.
  2. Revenue: When an already operating business considers turning into crowdfunding business, it is on the second stage i.e. revenue stage. Due to the involvement of experience, the risk level is lower at this stage.
  3. Validation: A crowdfunding business at this stage is one with good credit score but insufficient funds or good amount of funds but insufficient credit score. The risk factor is 50/50.
  4. Expansion: Businesses also have small crowdfunding business operated side by side with their main businesses. When an established business does not turn into crowdfunding business but start a side crowdfunding business, this is expansion stage. The risk factor depends on who will run the crowdfunding business side. If inexperienced people are chosen for crowdfunding business, the risk factor is equal to risk in the first stage i.e. Idea stage.
  5. Maturity: A crowdfunding business in operation since 3 years or above has reached the maturity level. Before investing in mature crowdfunded business, consider their previous revenue generation report. This is the safest crowdfunding platform to choose for your investments or to start a campaign.

Tip #2: Make Classification Based Investments

Business crowdfunding types can be classified on the basis of Rewards, Debt, Lending and Equity as well as on the basis of business relevancy.

  • The Reward type crowdfunding campaigns are the ones which include product or service rewards for advertising, marketing or social service purposes. It is good for businesses in need of promotional campaigns.
  • The second type is of Debt Campaigns. It is ideal for doing business in the mainstream market. In debt campaigns, the businesses raise money for giving it as loan to another business for their business goals. The returns are evaluated on the basis of money transfer costs and interest on loan.
  • The third type is of Lending based crowdfunding campaigns. The investors give a specific amount of money to cowdfunding platform being operated by a board of investors. The money is repeatedly invested in the mainstream market and the investors get returns in the form of interest on investment or market profits.
  • The fourth type is of Equity or Ownership campaign. Startup businesses and small corporations looking forward to enter the big market or expand business can take benefit of Equity crowdfunding.

Tip #3: Track Business Sector Relevancy

Every crowdfunding platform has a business record of investments. The record depends on the basis of expertise of corporate decision makers. For example, some crowdfunding platforms are ideal to invest in medical business. Some platforms are expert in real estate investments. Tracking business sector relevancy will help you evaluate the platform operations and brainstorm ideas to put forward for higher returns on investments.

Tip #4: Evaluate Platform Record

You can save your investments and reduce risk by evaluating the records of crowdfunding platforms. It is completely reasonable that you ask questions from the platform board to ensure the safety of your investments. Here are a few things to ask from the board of directors and decision makers.

  • What type of projects do you take?
  • How many projects are already there on board?
  • How much money is expected to be raised from those projects and in what time?
  • Can you provide a proof of successful projects?
  • Who manages the crowdfunding campaigns and what background do the managers have in crowdfunding investments?
  • What financial backing do you have?
  • How safe is my investment with you?

Tip# 5: Interview Decision-Makers

A majority of the crowdfunding platforms are supportive enough to assign you a representative. You can meet a decision-maker and ask business relevant questions for assuring that your money is in safe hands.

Tip# 6: Research Modern Crowdfunding Trends and Laws

As explained earlier, crowdfunding is a modern concept but it is still nurturing and growing. As crowdfunding is maturing, new laws and rules are being implemented by the government like the implementation of JOBS Act in April 2015. Make sure that you are aware of the most modern industry trends as well as of fresh laws and rules on crowdfunding.

Tip# 7: Descriptively Interpret Your Own Plans

No matter if you are lending money from a crowdfunding platform or investing in one, you need to have a clearer idea of your own plans to make things turn out your way. Descriptively explain your ideas and plans but make sure to listen to the ideas and plans of experts as well.

Tip# 8: Outline Your Financial Goals

Crowdfunding is all about money. It is one of the ideal business setups that raise money at both ends; for investors and borrowers. Consider your startup investments and outline your financial goals to mark where you want to take your business in next one, two or five years. Explain your financial goals to the board and ask them how they see your strategies.

Remember that crowdfunding is still a growing business. Before generating returns from this business, you need to remember that there may be new laws and regulations that may impact your business tomorrow. All successful crowdfunding campaigns are based on the ideology of a strong foundation, a solid plan. With our 8 tips to choose a crowdfunding platform and a solid plan, you can secure your investments and take your business to cloud nine.