Investing in crowdfunding for startups is different than participating in Kickstarter. When you pledge support in Kickstarter, you typically get a product or a product with some extra perks. But when you invest in a startup, you either giving a portion of a loan to a business or investing in part of the company.
On the crowdfunding site WeFunder, you can invest as little as $100 dollars. So let’s use that as an example. Investing in startups is inherently risky. Most startups fail, which means you could lose your whole investment. But on the times they succeed, it can go big. You can double your investment (in the case of a loan) or even 10x it (if you have stocks you can sell down the road). It’s a good idea to only invest what you can afford to lose. You have the chance to help a new company out, and that can feel good. That, combined with the potential to make money, is why it’s on our Side Hustle Master List.
Most of the early-stage startups on WeFunder issue convertible notes. Let’s say a company issues $1000 of convertible notes and you buy $100. Their company was valued at $3000 at the time, so you have about 3% of the equity in the company (100/3000). Let’s say everything goes well, they take off, and now their company is worth $300,000. Since you own 3%, you can sell that for $10,000. Now, that’s a needle-in-a-haystack type of scenario, but it’s just to illustrate the idea. There’s a lot more that goes into the growth of a business, so you should be as knowledgable about the company as possible. A good rule of thumb is to stick to what you know and try to find startups you like. There’s a lot to crowdsource investing, so be sure to take a look at the links below.