Crowdfunding: Is It Legit?

Crowdfunding as defined by investopedia is the use of small amounts of capital from a large number of individuals to finance a business venture and it is becoming popular nowadays. However, we need to do our due diligence before investing in this type of investment. 
Have you heard of fundamental analysis when investing in the stock market? If not, fundamental analysis is a method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors. In crowdfunding, fundamental analysis is a must since we are investing after all our hard earned money in a business just like in the stock market.
So what are the most important things to consider or understand?
1) Management

You have to know who are the people behind the business. Know what are their working experiences, education and/or background. You need to know whether they have the 'business acumen'.

2) Business Model

Understanding the business model of the company is knowing how the company generates revenue - how it distributes its products, target market, financing etc.

3) Financial Statements

Financial statements present the financial position and condition of the company. With these, you will be able to know whether the company is generating revenues (Income Statement), what assets and liabilities does the company has (Balance Sheet) and its cash position whether it is financed from operations, debt or equity (Cash Flows Statement).

Remember this when putting up a business - "If you don't manage your business based on facts, numbers and statistics, you will fail. You can lie to yourself and talk about the what ifs and tell yourself you will get better, but the reality is that in business, the numbers never lie and they are a direct reflection of all the decisions you have made."

Don't be easily fooled by the high ROI. You have to think as if you are the owner of the business. Like in shark tank, ask what are the sales, who are the audience, liabilities etc.
#Happy Investing!


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