Equity Crowdfunding has been exploding in popularity for the two companies and investors all over the world. Equity crowdfunding does not help the crowd to drive and fund innovation but in addition helps entrepreneurs’ companies to start and grow.
In 2015, AltFi and law firm Nabarro carried out a study on 367 firms that had been funded through equity crowdfunding websites.
That means 70 out of 367 companies had lost investors’ money and people that couldn’t be reached, if we add together the businesses that went out of business. We can estimate that 20% of startups funded through equity crowdfunding don’t reach adulthood.
Having seen that some companies funded through equity crowdfunding succeed while others fail, let’s look at various kinds of dangers that investors need to understand before they compose their first check.
It is possible for a business to lose value or go bankrupt. Most companies that seek funding through crowdfunding are early-stage ventures or startups. Mathematically, a number of these companies don’t survive past five years. If investors invest in start ups that do not succeed, they may lose all the money they invested.
It’s tough to resell your shares in the company you invested in.
There’s a lot supporting the curtain.
- Lack of information
Investors ought to expect to get less information about their investment than they would with traditional investment products. Businesses raising fund via equity crowdfunding aren’t required to give the same quantity of information as a public company. Investors simply receive less information for example annual financial statements and notices about events that are vital.
- Limited legal rights
These investments aren’t approved or reviewed by a securities regulator. Investors don’t have same legal rights that they would have had if they purchased under a stock exchange.
With equity crowdfunding figures and dangers involved, you can determine whether investment in equity crowdfunding is for you. Every investment decision carefully considered in advance and ought to be thoroughly researched. Equity crowdfunding is one of several potential investment options. However, always remember there are not any promises. Never invest money into a business you can’t afford to lose entirely.