Crowd-sourcing equity funding refers to a financial investment method where a large number of people or crowd raise money contributions through organizations in the form of equity. In many countries, small and medium-scale business owners gather a wider pool of connections to raise equity money, which in return will generate money for one common goal – gain from investments.
The start of crowd-sourced equity funding
Crowd-sourced equity funding can be traced centuries backwards, when subscriptions, bonds, and cooperative movements started in the financial world. In modern times, crowd-sourced equity begins to surge due to social media and fast modes of communication. Through social media, business owners and private individuals are able to see trending and current financial schemes. This also allows them to gather in communities and talk about their financial wide pool. The fast and open access to information like stocks exchange also allow the public to think about better ways to invest their money.
Joining Crowd-Sourced Equity: Is it Safe?
The internet’s ability to open and feed ideas to people about financial investments. Crowd-sourced equity is one of the most advertised forms of financial investments schemes among businesses and individuals today. However, it also opens several avenues to commit crimes such as fraud, money laundering, and other financial scams that can ruin yours and your family’s financials. This is why you need to be crucial in investing on crowd-sourced equity.
Things to Consider in Joining Crowd-Sourced Equity
So you have this family member or a very close friend who invited you to join their pool of small business owners in crowd-sourcing equity. Their explanations are too convincing and very tempting for you to join. Their promises of investment gain make you wanted it more. Well, here’s the thing, don’t jump on the inviting pond right away. Here are the things you need to consider:
- Back off and think again
- Consult a professional
- Calculate your finances
- Question the credibility of the crowd you are about to join in to
- Question the credibility of the offer or
- Question yourself
- Assess your financial status, the time you were able to establish your finances and the risk you are about to take when you join
- Understand the legalities. There are legal binds and laws pertaining to crowd-sourcing equity. Learn and understand the laws and look for your own safety net, just in case something went wrong in the future.
- If the promise includes huge return of investments in a very short period of time, don’t join.
So you have joined, what now?
Many small business owners join crowd-sourced equity funding because most of them think that the financial risk in this financial scheme is smaller than any other investments of its kind. Well, this is not a bad idea. What usually goes wrong in the crowd sourcing is when someone in the crowd deviates from the common goal and alters the financial stability of the whole pool. This is why it is very important to know the legality of the business you are about to enter and the personal profile of the crowd members you are about to join in.