Today, OurCrowd is featuring Part 2 of a special 3-part series from Matt and Wayne, the founders of Crowdability

Crowdability provides individual investors with independent research and education on equity crowdfunding. With their free service, they aim to simplify the process of discovering and evaluating crowdfunding opportunities.

In this series that they’ve created especially for OurCrowd, Crowdability will address investors’ 3 most common concerns about Equity Crowdfunding.

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In Part 1 of this Series, we addressed a concern about whether equity crowdfunding makes sense for ordinary people who aren’t intending to invest millions.

Today we’ll address another common concern – namely, that early-stage investing is too difficult, or takes too much time.

These are valid questions.  Early-stage investing certainly isn’t easy…

For one thing, since the companies raising funds are private, they’re not obligated to disclose details of their operations or financial results.  Gathering this critical information can be challenging and time-consuming, and interpreting it can be even harder.

That said, there are many ways to make the process faster and easier…

Let’s look at three of them now.

1. Actively “Follow” The Pros

Unlike the public stock market, where investors can be secretive about what they’re buying and selling, equity crowdfunding is extremely transparent.

By paying attention to what’s happening on crowdfunding platforms like AngelList, we can see when well-respected investors invest in start-ups.

We can then follow these investors – professional investors who often have many years of experience and a track record – into deals they’re putting money into.

For example, we can see when someone like Reid Hoffman (the founder of LinkedIn, and now an active investor) writes a check to a start-up. If we like the company, we can invest too – on the same terms as Mr. Hoffman.

AngelList tracks all of this activity, making it easy for us to stay up-to-date on our favorite investors.

To see Reid’s profile and “follow” him, click here.

Although this strategy is still time-consuming, it allows you to narrow your research to companies that have already attracted strong investors.

2. A “Mutual Fund” For Start-Ups

Another way to make the investment process faster and easier is to buy a “basket” of start-ups all at once.

We recently wrote about this topic on Crowdability » A “Mutual Fund” For Start-Ups

With this strategy, you can write one check… and gain access to 10 or so different companies.  It’s almost like a “mutual fund” for start-ups.

One downside to this approach is that you’re not able to “cherry pick” the companies you’d like to invest in.  You either invest in all of them, or none at all.

3. Let a “Pro” Do the Heavy Lifting

Another way to simplify the investment process is to let one of the crowdfunding portals do the “heavy lifting” for you.

OurCrowd, for example, created a service for investors that automates the entire process.  Here’s how it works:

Investors like us decide in advance how much total capital we’d like to allocate to equity crowdfunding deals on OurCrowd. There are 4 options, from $100k to $1 million.

OurCrowd then identifies the most promising start-ups, and does all the research and due diligence. When they find a company that’s investment-worthy, they negotiate the “deal,” invest their own capital – and allow us to invest alongside them.

If we like the deal, we’re automatically guaranteed access to it. OurCrowd uses a portion of the capital we’ve already committed.

If we don’t like it, we can “opt out,” and wait for the next deal.

You can learn more about it here.

Save Time – Boost Returns

Investing in equity crowdfunding deals can be a great way to diversify your overall investment portfolio and boost returns.  Investing using one of the above methods will simplify the process, save you time – and hopefully maximize your returns!

>>> See part 1 of The 3 Most Common Crowdfunding Concerns <<<

Today, OurCrowd is featuring Part 1 of a special 3-part series from Matt and Wayne, the founders of www.Crowdability.com. 

Crowdability provides individual investors with independent research and education on equity crowdfunding. With their free service, they aim to simplify the process of discovering and evaluating crowdfunding opportunities.

In this series that they’ve created especially for OurCrowd, Crowdability will address investors’ 3 most common concerns about Equity Crowdfunding. 

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“Dear Matt and Wayne: Does investing in equity crowdfunding deals make sense for me? I’m not a professional investor, and I’m not planning to invest millions into start-ups.”

Several times a week, our subscribers ask us variations of this same question.  Since it’s such a common concern, we thought we’d dig into it today.

Let’s start with the simple answer:

Yes, it does make sense – even if you’re not a “professional” investor, and regardless of how much you intend to invest.

You see, equity crowdfunding was specifically designed to help small companies raise small rounds of financing, ideally in small amounts from many investors.

The fact is, you can dip your toe in the water for less than you might think.

Let’s take a look…

Getting Started

Based on their knowledge of private placements or traditional venture capital funds, many people assume they need to allocate millions of dollars to be an early-stage investor.

But thanks to equity crowdfunding, you can generally get started for about $10,000 – far lower than the millions it would take to become a limited partner in a venture fund, or the $50,000 to $100,000 minimums of private placements.

These low minimums enable you to build a portfolio of start-ups – a basket of many of them – over time.  And given the risk of each individual company, this is a critical part of early-stage investing.

To put start-up risk in perspective, let’s take a look at how the professional investors go about their craft.

How the Professionals Do It

Venture capitalists are the professional investors who provide funding to young companies when they’re just an idea on the back of a napkin.

They know that for every “winner” they invest in that earns them a massive return (Facebook, for example, provided its early investors with a 2000x return), they’ll invest in 5 to 10 others that will either stumble along – or will go out of business entirely.

That’s why it’s so important to build a portfolio of holdings.

What It Means To Be “Diversified”

To make the numbers easy, let’s say you have investable assets (stocks, bonds, cash, etc.) of $1 million.

The professionals recommend that individuals allocate only a small portion of their assets to early-stage companies – in general, no more than 5% or 10%.

With $1 million and a 10% allocation to early-stage investments, you’d have $100,000 to invest in early-stage companies. (You can re-calculate the math based on the real size of your own portfolio.)

Data has shown that, for early-stage investments, you need a portfolio of at least 10 or 12 investments to be “diversified.”

In the above example, to reach your $100,000 allocation to early-stage deals, perhaps you’d commit $10,000 to each of 10 different companies.

Keep in mind that you would make these investments over the course of several years – for example, $20,000 per year for 5 years.

Lean On The Professionals

As you can see, you can become an early-stage investor and get the benefits of a diversified portfolio… all without investing millions in startups.

What’s more, you don’t have to do it on your own…

With some equity crowdfunding platforms – including www.OurCrowd.com – you can invest right alongside the professionals.

We believe that, with a little help from the pros, everyday investors can leverage equity crowdfunding to enhance their overall portfolio returns.

We applaud our readers who write us with their questions and concerns – and we’re always happy to help.  For our next column, we’re going to cover another concern we often hear:

“It’s Too Complicated & I Don’t Have Enough Time!”