The Crowdfunding Paradox
As it stands now, Equity Crowdfunding is a bit of a paradox. Investing is always seen as a risk-reward situation, wherein you do your best to minimize the risk while maximizing the rewards through efforts like due diligence. However, because crowdfunding is the opposite of traditional funding, wherein a few number of backers supply a large percentage of the funding, it becomes inefficient and costly to perform due diligence checks, effectively gimping the asset class from being recognizing its full worth. So, let’s look at some areas we can look to optimize so that we can reduce the paradoxical nature of equity crowdfunding as it stands today:
- Due Diligence (of course, did you guess?) – can be made more efficient by appointing one lead investor who is both local and trusted.
- Awareness – can be achieved by portals conducting initial screening, on top of the lead investors sorting through the opportunities and presenting the best ones to their fellow investors
- Transaction – by utilizing portals, everyone involved can cut down on participation transaction costs
The costs associated with investing are generally driven by the gathering and analysis of information. The faster and easier you make it to acquire said information, while still feeling it is reliable, the higher quality crowdfunding becomes as an asset class. These are three ways to make crowdfunding a little less of a conundrum.