As we prepare for U.S. crowdfund investing (CFI) to go live in 2013, many investors are asking a very important question: “What’s the smartest way to approach this opportunity?”
INVEST WITH PEOPLE YOU TRUST
A new form of investing, CFI is meant help startups and small businesses access capital needed to grow and hire. It’s predicated on the fact that if you have a relationship with an entrepreneur and believe the idea you should be able to fund it. But that doesn’t mean you can’t lose your entire investment — you can, and you need to be prepared to face that reality.
Relationships build trust. If you give money to someone you know, your chances of getting it back are much higher. The individual will feel a personal responsibility to do right by you. This doesn’t necessarily exist in the traditional markets. But it requires investing within your circle of trust, and, again, it doesn’t mean your investment is guaranteed to succeed.
UNDERSTAND THIS IS RISKY AND THERE ARE NO GUARANTEES
Make no mistake; investing in startups and small enterprises is risky business. No matter how well you may know the person seeking funds, or how rock solid the business proposal seems, you must proceed with caution and prepare for worst-case scenarios. You should invest only in products or services you’d buy yourself, revenue models you understand, and entrepreneurs you know and trust.