Five ways investors can make the most of crowdfunding

Crowdfunding, simply put, is a large number of small investors raising capital for a project to succeed. Besides the feel-good factor, online buzz and passion for the project, the promise of reward is one of the major motivations for the investors to consider crowdfunding.

For an entrepreneur, one of the more accepted reasons for taking the crowdfunding route is using it as a precursor for a much larger investment from bigger investors. A few others believe crowdfunding helps them have more control over their business decisions.

Whatever the reason, just like the modern day entrepreneur, those in the investor community too are leveraging this changing paradigm for the better. Let us take a look at how investors are making the most of crowdfunding.

1. Crowd Test The Offering

For long, beta testing used to be the last stage of testing. But now an increasing number of investors are getting their portfolio companies to test their products with the crowd before a full-on commercial release. Another use of the crowdfunding channel is for purposes of pre-sales and inventory planning (see my earlier article: 10 reasons why India could fall in love with crowdfunding). This sort of crowd testing can work like a charm, especially for B2C companies.

2. Invest & Reach Out Early

The beauty of having contact information and other social media channels integrated into a crowdfunding campaign page is the opportunity it provides to easily interact with interested investors. Investors sharing insights and helping project-owners fill gaps may just be the boost that the offering might have needed to succeed.

3. Look beyond Elevator Pitches

Regular blog updates and candid video pitches can promote projects to not just receive investments but also reach out to potential customers and investors for future engagements. With such extensive information out in the open domain, investors can better understand the offering, the people behind it and more. There is also the opportunity for investors to make use of the project data to analyze the startup and estimate its worth.

4. Connect with Potential Co-investors

Crowdfunding has put the spotlight around innovations in funding, extending beyond the existing disruption it has brought to the investor community. Investors through crowdfunding projects and their platforms can connect with several other like-minded investors to find ways of working together. Investors contributing to crowdfunding projects can be a starting point in the creation of many more enduring funding and co-investment models.

5. Exploring better curated Deal Flows

This is one of the biggest catches for investors, especially those who wish to take crowdfunding seriously. The multi-level due diligence, right from the crowd to the platform providers is quite unique, along with following time-bound updates and tracking delivery in case of product pre-sales. Via crowdfunding, investors can make up their mind on good and bad deals much faster and more accurately.

Thus, whether a small or large investor or a private equity firm, crowdfunding has something in it for every kind of investor. It has made the investment community much more social, data-driven and, importantly, given them access to a host of projects, partners and business opportunities to leverage from. After all, isn't long-term growth and mitigating risks along the way what most business endeavors want?

In the next posts we will probe deeper into crowdfunding and explore the state of crowdfunding in India. We will also be reaching out to various stakeholders in the crowdfunding ecosystem to hear more on the challenges they are facing as well as make sense of the future forecasts.

If you are an investor, crowdfunding site or aspiring startup, do get in touch and post your comments below!