Creating a sustainable income through crowdfunding continues to become a more prominent concept as the phenomenon spreads. It is being embraced by seasoned investors as well as those that are new to the scene.
This article aims to explain how crowdfunding is an easily accessible investment option for those who are looking to get started with investing, as well as for those who are looking to diversify their existing portfolio.
Investing for Financial Gains
By investing in crowdfunding via a company campaign, you will eventually be receiving regular payments from that company. The potential to become a part owner in the business you are investing in also exists. This means that investing for income is a very real possibility in the long term.
When a company begins offering shares in return for investment via an equity crowdfunding campaign, it is their intention to raise a large sum of money in exchange for these shares. This money could either be to take their business from the idea stages into actuality, or it could be to expand a business that is already operating. By investing in the early stages of a company’s development, your potential for future gains is huge. As the company in question continues to develop, you will also have the option to increase the amount of shares you hold, meaning you can also increase the amount of income you earn from these shares in the future.
When you invest money into a company via their equity crowdfunding campaign, you will be promised a percentage of their future profits in return for your initial investment. This is in contrast to the perhaps more well-known concept of rewards-based crowdfunding, with which a person choosing to contribute will simply receive a one off reward for doing so. This will usually be a small token gift, such as a CD in return for helping a band launch a new album, or a free meal for contributing towards the launch of a food venue.
Loan Based Crowdfunding
Loan based crowdfunding is another option and is slightly different to equity crowdfunding. Loan based crowdfunding, which is also often known as peer to peer lending, involves investing money into a crowdfunding campaign in return for an eventual repayment of their capital. The investor will also be paid interest payments by the company in question at regular intervals as agreed.
Costs and Risks of Crowdfunding
As is true of the crowdfunding industry in general, there are various costs associated with investment crowdfunding. There are also certain risks involved that you should always be aware of. One of the most common risks is loss of capital if the business fails, which is arguably highly likely if you are investing in a start-up. Illiquidity is also a common risk when investing in a young business due to your inability to sell these shares on until the business has matured to a certain point. You should also be aware that if you are investing in the crowdfunding campaign of a start-up, that you are unlikely to begin receiving dividends until the company has been operating for a few years.
There are ways to mitigate the risks associated with this type of investment. The best way to do so is to build a diverse portfolio of investments in various crowdfunding campaigns. In addition to this diversification involving a number of separate companies, it should also include a variety of different industry sectors, as well as companies at different stages of development. When you are choosing which businesses to invest your money in, do your research into each company thoroughly and also research the predicted future growth and profits.
In addition to the potential financial gains of investing in crowdfunding, you can also enjoy the fact that by doing so you will be helping to establish the future generation of businesses!
If you want to start making crowdfunding work for you then head to our investor registration page and sign up to Go2 Business Loans.
This is peer to peer lending and your investment is at risk. We encourage investors to diversify their portfolio and to review all investments to ensure that they meet with their own investment criteria.
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