Should You Think About Investing in Crowdfunding Projects?

No doubt you’ve heard of crowdfunding by now. The idea is you pledge a certain amount of money to a project through a crowdfunding website. If the project hits its target the money is used to set up a business or achieve whatever goal the project set out to achieve. Investors receive something in return for their investment, although the nature of the return depends on the specific project.

This form of investment has certainly made headlines in recent times. It has been around for a few years and plenty of projects have been successfully funded in that time. But is this the ideal investment opportunity for you?

Know your limits

The great thing about crowdfunding is you generally get to choose how much – or how little – you want to invest in a project. Sometimes this could be as little as five or ten dollars. This isn’t much of a risk if you believe in the project and feel supportive of it. However you can invest thousands and in this situation you are taking on much more of a risk. No matter how successful a new business start-up is at the beginning, it can fail – and for a number of reasons too.

What do you get in return?

You should be very clear on this before you invest. The rewards can be very diverse. The upcoming Veronica Mars movie – funded purely by fans of the former TV series – has granted walk on parts to those who invested a certain amount in supporting the making of the movie. Artists have given free tickets to exhibitions funded in this way, while businesses of all kinds have granted discounts to those who invest in the business model. Make sure you know exactly what you get in return for your investment.

Don’t expect miracles

This is definitely an innovative model for investing in all manner of different businesses and projects. This is undoubtedly what attracts many people to this form of investment. However you should be aware of the risks that are involved. Don’t be tempted to invest without finding out as much as you can about the project first. Furthermore you should consider a sensible amount to invest, rather than being tempted to sink too much into a single project.

Indeed, it is wise to follow the ‘eggs and basket’ theory, in that you should have more than one basket to put them in. If you spread the wealth, so to speak, you stand a chance of reaping more back for your investment.

It should be said that crowdfunding is not for everyone. It is an easy investment to make and there are plenty of worthwhile projects to look at. But it may not be right for you, especially if you want reasonable odds that you will get your money back and more besides. As a side dish to your main course it may work, but be sure to consider all the options before you start investing.