Crowdfunding Continue’s to Explode: What You Need To Know

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Although the SEC has failed to deliver rules about Title III of the JOBS Act, the world of crowdfunding literally exploded in 2014. Coolest delivered a $13 million payday. Reading Rainbow cleared $6 million and hit their initial goals in just 24 hours. People are more interested than ever before about getting involved in investment opportunities. When a campaign can get 100k backers like Reading Rainbow did, it shows that there is a lot of people who want to get some skin in the game.

Crowdfunding might seem like a magic money pill, but it is still an investment opportunity – even the rewards-based campaigns that are being run. That’s why there are some things that the average person will need to remember going into 2015 and beyond.

1. Crowdfunding Is Not An E-Commerce Platform.

Many people are treating platforms like Kickstarter as a store. Kickstarter is not Amazon. There is no guarantee that people will get the items which are stated in the rewards sidebar. At best, it might be considered a pre-order opportunity and nothing more. There is always risk, even if it has been minimized, when putting money into any crowdfunding opportunity. That can never be forgotten.

2. IP Protection Is Absolutely Necessary.

If a crowdfunding campaign has not taken steps to trademark designs, create patents, or take on other measures to protect their intellectual property, then there is a 100% guarantee that good designs are going to be copied. Just ask Scott Wilson. He raised nearly $1 million on his TikTok Lunatik. Without IP protections, his designs were legally copied and he had no way to recoup.

3. Equity Is Set For Some Huge Future Successes.

Obtaining equity hasn’t always been easy for new entrepreneurs. This is especially true for when new businesses are involved. Equity is often based on actual value and not future value, so backers might be forced to give up a third of their company for an investment of less than $20k. With crowdfunding equity on the horizon for everyone, the concept can have value and backers can put in equity based more on the future value that is estimated rather than the current value that’s on paper.

4. Local Crowdfunding May Replace National/Global Crowdfunding.

Because the SEC has failed to act on the laws that the government has passed, local crowdfunding platforms have begun to fill in the gaps that businesses have wanted. If this trend continues on through 2015 and beyond, then local investment opportunities may pair backers and business owners together in a unique way. Local dollars have about double the investment value as well, so this type of crowdfunding makes sense even if the SEC passes rules on Title III.

5. Smaller Is Going To Be More Valuable Than Bigger.

The best investment opportunities are going to come from small businesses that are looking for small investment amounts. Although successes would need to be achieved multiple times, there’s less overall risk in this method when compared with the idea of going all-in on one big ground floor chance.

Crowdfunding has brought the world of investing to the average person and that’s a good thing. The explosion has just begun to expand outward. By keeping these tips in mind for 2015 and into the future, everyone will have a great chance to make their financial portfolios explode in a good way as well.