Crowdfunding has come a long way in the last decade. From rewards-based crowdfunding to equity and real estate crowdfunding, how companies and investors get the money they need to pursue the best deals has changed. But crowdfunding isn’t for everyone. Here are six reasons why you may not want to pursue crowdfunding for your next real estate or equity deal.
1. Having the means from your support system or relatives – There are different ways to fund a deal. Crowdfunding is just one of them. If you have a wealthy relative sponsoring your business goals, then you may not need crowdfunding. Your wealthy relative may not want you to pursue crowdfunding. There is certainly something to be said for wealthy relatives.
2. Self-funded and you want to continue to be – Any time you pick up extra capital, venture or otherwise, you lose some control over your project. If you want to maintain 100% control over your projects, then your best bet is to fund them yourself. If you have the money to do that, then more power to you.
3. Restrictions from venture capital agreements – Some investors want to limit the number of people they share interests with. If you have a wealthy angel who insists you not seek other partners, then you’ll have to decide how important that angel is to you. More than likely, if they’re passionate about your project, then your best bet is to take their restrictions. If you can’t do that and you believe you can get the funding you need through crowdfunding, then count the cost and make the decision that is right for you.
4. Not interested in building your network – One of the key benefits to crowdfunding is the network you’ll build. Current investors in your projects could become future investors in other projects. Everyone you meet through your crowdfunding efforts becomes a part of your ongoing network. That is a benefit in itself.
5. Keeping the details of your project a secret – Once you set your crowdfunding campaign to Go, your project becomes public knowledge. If you’re concerned that a competitor with ready capital and the ability to move fast could steal your idea, then you may want to find another funding source. On the other hand, for real estate deals, crowdfunding is often one of the best ways to get a project funded, and most projects don’t require a high level of secrecy.6.
6. Form a Clear Vision – A successful crowdfunding campaign, whether equity-based or debt-based, depends on clearly set goals and a vision for how it fits into your overall business plan. If you don’t have that, then a crowdfunding campaign could muddy the waters and lead to great confusion for you and your team. First, nail down your vision. What is your goal for the campaign and how does that fit into your overall business plan.
Have an Open Mind but Know What You Are Getting Into
There’s no business like the crowdfunding business. You are asking people to invest in your project. The key is to manage your expectations and understand the risks.
None of this is meant to scare you away from crowdfunding, nor should it be taken as legal advice, but it’s important to understand the nature of the transactions you are undertaking on any crowdfunding platform. Whether you pursue equity or debt-based crowdfunding, real estate or small business crowdfunding, or you are an institutional or accredited investor, go into each project with your eyes open, do your due diligence, and understand the risks before you make your first investment.