Share on facebook
Share on twitter
Share on linkedin

3 Tips to Avoid Bad Crowdfunding Investments

Generally, crowdfunding has opened up opportunities for budding entrepreneurs and startups beyond anyone’s expectation. It has made everything easier for investors and all of a sudden, initial investments and capital are not a problem anymore. Currently, you can start operating as long as you have an idea of what you plan to do and a perfectly-thought-out pitch.

According to Shojin Property Partners, the process of crowdfunding helps when it comes to putting an idea into action especially when it comes to property. It involves making investors believe in a concept and encourage them to put a portion of their financial resources into your project.

This concept has proved to be an effective way of making business ideas fly. Some of the instances of crowdfunding success include projects like Oculus Rift that raised about $2.4 million but was later purchased for billions of dollars by a giant social network – Facebook. Tile, an app that helps in locating missing objects, raised about $2.6 million through crowdfunding.

Crowdfunding gone wrong

This new funding technique isn’t a thing for everyone. There will be instances of people who would simply take advantage of the amazing promises of investment crowdfunding and swindle people interested in investing.

You must have heard something about iBackPack and Indegogo Kickstarter campaign. After raising about $750,000 via promises of creating a TSA-friendly bag with outstanding features, Doug Monahan, the founder, suddenly then went off the grid. They had promised great features such as GPS abilities that can help locate the bag in case it is misplaced, Wi-Fi router that could turn it into a reliable mobile hotspot, and outstanding battery capabilities that could help the user charge different devices.

Join Our Small Business Community

Get the latest news, resources and tips to help you and your small business succeed.

Investors involved in this project had an inkling that something was not right when one commenter disclosed that he was contacted by a Federal Trade Commission’s representative through email.

This email, according to The Verge, came from the commission’s Bureau of Consumer Protection and the message intended to establish whether or not fraud was committed.

The email also indicated that the commission was trying to prevent any further unfortunate incidents of fraud from happening.

Triton Artificial Gills is another crowdfunding project that got funded successfully but badly ripped off the backers. The project had promised the gadget users that they would be able to breathe underwater for about 45 minutes.

The project raised approximately $850,000 within a few days before experts refuted different claims associated with the gadgets. Eventually, the company pulled the plug on the Triton Artificial Gills project and refunded the backers.

If you intend to invest, it is important that you are aware that sometimes crowdfunding investments could go wrong. It is important that you do due diligence in choosing a crowdfunding investment to avoid losing money.

Avoid being scammed in crowdfunding

There are effective ways of making sure that you don’t get ripped off if you intend to support any crowdfunding investment project. Sometimes, projects might not get completed for a simple reason that the individual who started it offshoots the overall budget by miles.

Deadlines might not be met just because some ideas require more time to take the right shape. So, if you are planning to cash in on any investment, keep the following tips in mind.

1. Understand the complexity

If an investment project sounds too good to be true, there is a higher probability that it is. According to Digital Trends, it is recommended first to understand the complexity of the project you wish to support before giving out your money.

More complicated investment projects have a higher risk of failing. While there is a higher chance of getting better ROI for complex projects, understand that the probability of that project being incomplete is high as well.

2. Do your homework

One of the benefits of living in the digital era is that it is now easier than ever to get information about anything and anyone. If you intend to invest your money in a certain project, it is prudent that you perform extensive research especially on the different people you will be dealing with. You will definitely find incredible information about the team you want to support.

3. Analyze the crowdfunding platform

One of the reliable gauges for crowdfunding projects is the specific platform where the campaign was launched. Most reliable crowdfunding platforms have very strict screening processes before they allow a certain campaign to run.

This should be your first line of defence. This is because if such sites have published the project, there is a big chance it is legit.

The Bottom Line

Generally, crowdfunding campaigns are excellent opportunities for people to become part of something big and revolutionary. You shouldn’t let the fear of the unknown prevent you from taking part in something with the potential of becoming the next generation discovery. Just do your research, gather information, and you should end up investing your cash in the right project.

Join Our Small Business Community

Get the latest news, resources and tips to help you and your small business succeed.