Equity Crowdfunding is a risky business. Nonetheless, the scope of risk associated with investing in a young company is difficult to quantify. Even the veteran investors go wrong with their calculations and judgments.
But isn’t the investment business all about taking chances?
Equity Crowdfunding has brought in umpteen opportunities to investors to make their fortunes and grow richer. The technology has given a prospect to every ordinary investor to own equity stakes in high-growth, early-stage startups. On the downside, poor decision making can swipe away all your lifetime earnings.
Let us walk you through the key risks associated with Equity Crowdfunding; so you can make well thought over decisions:
#1 Wrong Selection
A bad choice could be the worst thing that can happen to you when you are discussing and doing Equity Crowdfunding. Innumerable companies die even before celebrating their first birthday. That is where diversification comes into the picture. Nobody can be right all the time. That’s why it’s important to powerfully diversify your portfolio in order to dilute the effects of bad choices.
Equity Crowdfunding definitely has provided another playground for fraudulent activities. People with ill intentions but well-laid proposals can take advantage of this technology. That’s why here at MyMicroInvest, we always conduct a serious due diligence of the company before offering you to invest in it.
#3 Uncertain period of investment
One of the hardest risks and challenges Equity Crowdfunding is facing today is that there is no certainty on the duration of lock-in period for your investment. Therefore, it is highly recommended to invest only that amount of money into equity crowdfunding, which you can afford to lock for long, as well as, loose without getting affected severely.
We always recommend our investors to follow the 10/10/10 rule: you should only invest 10% of your savings you can set aside for the next 10 years, in at least 10 companies.
#4 Possibly no financial gains throughout the investment period
In the usual lifetime of an equity crowdfunding investment, the investor rarely gets any monetary benefits out of it. There are no dividends paid. No profit-sharing is done with the investors. They have to wait until the end of the investment period for getting their profit share. Apparently, the end has to be a successful one, or else, you will be left empty handed.
#5 Lack of education
Some investors dive into Equity Crowdfunding without learning about the risks, benefits or rights linked to the activity. That’s why, we do our best to share our knowledge in order to convert our members into wise investors.
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