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Would You Consider Crowdfunding?

Poll QuestionCrowdfunding is now raising billions of dollars for startup companies and projects each year.

Here’s how it works: A business or entrepreneur seeks funding from the general public, typically using Internet websites that specialize in this type of investing. In return, investors get rewards, earn interest or receive shares in the company.

It’s the last type of return we’re interested in here, so that eliminates platforms like Indiegogo and Kickstarter – those are charitable sites. That’s probably good, because you really don’t want to get us started on the guy who netted more than $50,000 on Kickstarter to make potato salad.

(Although we admit, these sites seeking online donations for worthy causes do have their place.)

And we’re not talking about peer-to-peer lending sites, like Lending Club and Prosper, although those are closer since you can earn a return.

We mean investment sites, such as Crowdfunder and the like, where you help fund a new project and (possibly) earn a return – like in the real world.

Investing through crowdfunding can be risky. Not every great new idea makes money. In fact, a majority of startups fail. You could lose every dime you invest, just like in the stock market.

For example, crowdfunding site AngelList, which helps tech startups make funding pitches, has a very, very lengthy list of all the risks inherent in this type of investment.

Your safer bets range from government-insured savings accounts to target date mutual funds. (These are investments in stocks and bonds that limit your exposure to risk as you get older.)

Given that, experts recommend applying real-world research before investing in a crowdfunding campaign.

A 2012 Forbes article on profiting from crowdfunding says you should:

  • Examine financial statements. This includes corporate tax returns, which all companies must provide.
  • Locate licenses and registrations. “If you spot something questionable in this basic information, a company could be lying on other details,” Forbes reports.
  • Hunt down litigation against the company.

Even if this investment isn’t for you, cruising crowdfunding sites and checking out big dreams – perhaps the next big thing – can be fun.

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What would make you consider participating in a crowdfunding project?
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