What can you find on their page?
“Our mission is to provide crowdfunding investors with the same level of research a VC fund would perform. We do this by finding new deals on crowdfunding portals and completing a due diligence report on each deal to provide investors with additional information needed to make an informed decision on whether or not they should invest in the startup.”
The research is carried out by eight contributors, whose backgrounds include entrepreneurship and law. Fisher himself is a serial entrepreneur and contributing to the research. He describes his latest project and what goes into each campaign report below.
We are now live! https://t.co/2QED5YReEC
— Crowdfund Research (@ResearchCf) February 1, 2017
Crowdfund Insider: You introduced Crowdfund Research earlier this month. What led you to start the organization?
Jake Fisher: When Title III went into effect, it was the excitement that non-accredited investors would be able to invest in the same type of great startups that venture capitalists or angel investors were investing in. What I have observed is many of the same issues that Amy Wan brought up in her article on Crowfund Insider: overinflated valuations and lack of safety net terms that are fairly standard requirements by VCs or Angels. These commonly accepted terms help reduce some of the downside risks to startup investing.
The other issue I’ve observed is these campaigns are being promoted by the portals very similarly to a Kickstarter or Indiegogo campaign. The story of why the product is great is very well told, but the key metrics of why the business is great is often buried in the form C filing. I believe an investment should be made not just because you like the product, but because the business behind the product also has great fundamentals.
With Crowdfund Research our goal is to give readers a look into how our contributors perform due diligence prior to making an investment.
CI: Does Crowdfund Research have a particular area or topic of expertise?
JF: We are focusing on all Reg CF offerings that are available to non-accredited investors.
CI: You help investors free of charge. Where does your revenue come from?
JF: Currently there is an issue that many of the portals require a startup to have a massive social following or customer base due to the fact that roughly 70% of funds raised will be generated by the startup. This leaves a lot of great startups that don’t fit the “crowdfunding model”. As a crowdfunding industry, until we can attract and educate enough investors to be comfortable with crowdfunding, it is very difficult to establish a revenue model that is profitable and avoids a conflict of interest.
Our reviewers are required to disclose any conflict or interest in a reviewed company. For now, we are focused on helping grow the community and will develop a fair revenue model based on the success of the broader community.
CI: What sources do you use in your research of startups?
JF: Each contributor on Crowdfund Research has their own methods for researching a startup. We all start with what is available on the portal page along with the information buried in the form C filing. Other common sources are sites like Crunchbase, AngelList and F6S. All of our research is from publicly available information, that any non-accredited investor could access.
CI: How do you choose the startups and/or campaigns to write reports on?
JF: Our goal is to publish reports on all Reg CF campaigns. We are covering all portals currently. Our reports don’t make recommendations whether you should or should not invest in a particular, we point out elements that we would consider in our own investment due diligence process.
CI: What are patterns that signal success in the startups and/or campaigns that you review? What about patterns of pitfalls?
JF: I think a startup’s current traction plays a major role in the success of a campaign. Traction is often something that can be quantifiable, like revenue or the number of current customers or users. Industry appropriate valuation is another major factor. I think valuations in the 3-5M range are at an excellent stage for crowdfunding. This is a common valuation range for startups just coming out of accelerators like YCombinator or Techstars.
I think a big pitfall currently for campaigns is the lack of having a lead investor. Not in the sense that a lead investor is required, but a lead investor will negotiate valuation and terms they are willing to pay. If I’m selling fruit at a farmers market and trying to charge three times the price as the booths around me, I’m not going to sell much fruit. I think the same logic can be applied to crowdfunding.
CI: What is your overall advice for non-accredited investors?
JF: Do your homework prior to making an investment, it takes more than just watching the campaign video and thinking the product is cool. A study performed by the Angel Capital Association found that investors that spent more than 20 hours on due diligence per investment were five times more likely to have a positive return.
CI: What about your thoughts for policy and regulation changes that should be made?
JF: I think the Fix Crowdfunding Act (HR 4855) is a key factor to the future success of crowdfunding. Allowing the use of SPV’s (special purpose vehicles) and investment leads will make major improvements. This syndicate type model has seen a lot of success on sites like AngelList, but this model is currently only open to accredited investors.
CI: Does the weight of vetting deals fall on crowdfunding portals or policymakers/regulators?
JF: The weight of vetting deals should fall on the portals, but only in regards to ensuring startups are in compliance with the regulations to prevent fraud. I believe it should be left to the free market to determine which startups are funded. I think it is the responsibility of each individual, to research and make an informed decision on a crowdfunding investment. These are the same principles as investing in the stock market.