Three Common Crowdfunding Myths

Three Common Crowdfunding Myths

Companies Using Equity Crowdfunding Are Unable To Access Venture Capital

Many commentators have mistakenly thought venture capital funding and crowdfunding are opposed. This is not the case, crowdfunding and VC networks have a productive relationship. Often venture capitalists and other institutional investors will be contributing capital in conjunction with a crowdfunding platform.

High quality companies are beginning to include equity crowdfunding in their capital raising strategy due to the ease and speed of the process, as well in recognition of the cost benefits and efficiencies it provides. The collaborative nature of equity crowdfunding enables the company to gauge the market reaction to their product or service, providing validation for their idea. Crowdfunding has the additional benefit of transparency, which lends credibility to the traditional angel investor network.

Furthermore, equity crowdfunding allows companies to directly engage with an invested audience through non-traditional avenues such as social media, potentially raising their brand awareness. For investors, this demonstrates that these businesses are those which seek to be more in tune with their stakeholders, and strive for efficiency, transparency, and prudence.

Crowdfunding Does Not Provide Returns

Equity crowdfunding is a subset of crowdfunding. Crowdfunding is often associated with raising funds for individuals and charities, sometimes with no monetary benefit for the donor. However, equity crowdfunding platforms like Equitise provide investors with the opportunity to purchase shares in a business.

As equity crowdfunding provides part-ownership of the company, there is the potential for financial reward for the investor. Although equity crowdfunding, and often the companies crowdfunded, are still in their infancy, the product supplied can provide returns in the same way as any other equity investment. As shareholders in a company, investors have access to possible returns from dividends company management may choose to distribute, and any capital gain in their stake.

Equitise believes that equity crowdfunding should not just be a “feel good” emotional investment, but rather an investment which provides a solid financial return. Our main priority as a platform is economic return for an investor, followed by emotional attachment, not the other way around.

Businesses Listing On Equity Crowdfunding Platforms Are Too Risky To Get Involved With

Equity crowdfunding is associated with early stage businesses, which do generally carry a higher risk. However it is evolving, and companies worldwide are beginning to view it as part of the general funding track of a company. Interestingly, recent global equity crowdfunded companies include those immediately pre-IPO.

The inherent risks associated with any investment correlate to the possible returns they can generate. Equitise allows investors access to returns previously reserved only for wholesale investors or institutions such as venture capitalists. Returns have the potential to be high if investors are diligent and diversify, but it isn’t without risk. Including these investments in a balanced and diversified portfolio can be part of sensible and prudent investing. Equitise encourages investors to seek investment advice, and to only ever invest amounts they can afford to lose. No investment, even those in listed companies on the NZX or ASX, is without risk.

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