Crowd Funding: Where should you invest?
Whilst the obvious answer is in a good business, good idea and a good team; this blog explores that this is an obvious trap.
The simple answer to where to invest is follow the team and whilst this is the stable advise from any venture and PE house, should and does the same apply for those looking at using their hard earned money to invest in emergent, early or growth businesses using a crowd funding platform? The pragmatic approach is YES. So what next after you have filtered through CrowdCube, Kickstarter, Indiegogo, Fundable, Crowdfunder, EarlyShares, SeedInvest, GetFunded, WeFunder and RelayFund for starters (yes I know this is a mix of equity and other funding models) This is where it is time to think differently.
As in the diagram below I want you to image three circles which overlap and are labeled good Idea, good business and bad idea. Let’s jump straight past the notion that you will invest in a bad business (whatever one on those is) and that you, like I, like anyone else want to only invest in a good business. Yes I am assuming that you can make the judgment here between a good and a bad business and the reason for this blog is to question should you invest in a good or bad idea?
It is obvious that everyone wants to invest in good ideas that are good businesses; however it is this obviousness which I wish to challenge.
The issue with good ideas is that they are just that, a good idea. The idea is good as it meets your expectations, your experiences and your view of the world. In this cozy world where you agree with the idea, the market and the approach you may just make too many assumptions. There is a natural alignment of the stars and the comfort that the team thinks like you means that this is where your money should be. However the danger of this is that you don’t challenge anything. You assume. You assume that the team thinks like you. You assume that the journey to where the team and ideas is and where is it going is just like you. This lazy or comfort trap is the danger zone, and it is where you depend on your experience and not on your ability to question, challenge or understand. Good ideas become good businesses in your view as they are like you, the economics are known and it is easy to stick with what you already understand.
So here is the challenge. Why not start to look at those projects that appear to be bad ideas from your experience. It is amazing how you immediately raise questions and stop assuming. You challenge the concept, the vision, the audience, the pricing, the costs, the channel, the messaging and the very fabric of the rational. What a better place to be. You are now in information gathering mode, wanting to understand why something that is outside of your experience could work. This assessment will help you think about the team and their approach, are they open to change, will they adopt are they sure about their own assumptions, where are the risks.
Crowd Funding: Where should you invest? My suggestion would be team first and then something which is outside of your experience so that you naturally challenge the assumptions. Once you know how to stop assuming, using your experience will be invaluable as will know if anyone has the wrong assumptions. I have nothing against good ideas ….. other than those backed by individuals who all assume!
Disclosure and Transparency statement : I am currently using CrowdCube to raise money for iNeed is a business I have founded with Simon and it connects people who need something with someone who can.