As the dawn of equity-crowdfunding nears, I continue to hear a number of tips for investors interested in equity crowdfunding. I have not created a comprehensive inventory yet, but I think these four are the most important:
1. Invest in people. When you invest in start-up or early stage companies, you are largely investing in the talent and dedication of the CEO. You should feel confident that the CEO and any team he/she has put in place, can move the business forward; in investment jargon, that he/she and the team “can execute the business plan.”
2. Trust your gut. Intuition is an effective decision maker. Often, trusting your gut on an investment will lead to better decision making than will prolonged contemplation or deliberation. As Donald Trump says, “it pays to trust your instinct.” This rule applies to equity crowdfunding as well.
3. Do Your Due Diligence . . . Together. Investors always need to take reasonable steps to assess the business and determine its potential as an investment. The beauty of equity crowdfunding is that investors engage in due diligence together, even if they don’t know each other, by sharing the information they have uncovered. While each investor decides for himself/herself whether or not to invest his/her money, the due diligence can and should be done together.
4. Don’t Over-Invest. Do not invest more than you can afford to lose. This rule applies to equity crowdfunding as well as all other types of investments. Every investment carries risk, including crowdfunding investing. Keep this rule near the top of your mind.