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One of the things that I love about technology, despite all its perils, is how it has allowed us to share and invest in our passions. Indeed without it, many of us would not have so much as heard of the professions that we are practicing today. Technology has also allowed us to expand our circles of influence, allowing us to impact more lives as we go about doing what we love. Just think of how when you are having a really bad day, and just one positive tweet or Facebook post from someone like literally redirects the whole course of your life for the rest of that day.Furthermore, in our journey of acquiring wealth, technology has now mobilized the process of accumulating wealth whilst making a significant impact in the lives of others through crowdfund investing platforms.
As someone who wants to create an impact in everything I do-including making money- I did a bit of investigating. I wanted to know what crowdfund investing is, how it works, how I can make money from it and what companies are available to me should I consider it as an investment vehicle.
The dictionary of all wealth seekers, Investopedia, defines crowdfunding as the use of small amounts of capital from a large number of individuals to finance a new business venture. According to Forbes, Crowdfunding can take up 3 basic forms. The first being where the contributor expects no financial return, much like Kickstarter and Indiegogo. The second being through lending and the last but not least being through crowd investing where the contributor is an investor receiving equity, profit or revenue sharing in exchange. For personal-motive reasons, I decided to dig deeper on the last 2 of these 3 forms. Hey, don’t judge!
Peer to peer lending…
So crowdfunding in its lending form focuses on linking customers (usually small businesses) who need loans at low rates to investors who seek attractive returns. An example of one of these is the Lending Club, which is an online credit marketplace that allows borrowers lower interest rates and investors attractive and risk-adjusted returns, which are typically 5.26% to 8.69% -neat! With these platforms your money is paid back to you with interest in weekly or monthly installments as soon as the borrower starts paying back the funds.
With investment crowdfunding, as a contributor you are essentially a venture capitalist (fancy much?). Now, crowdfund investing can present itself in various forms. The most common of these is through platforms such as CircleUp , which are in essence traditional venture capitalist platforms in that only Accredited Investors* under the definition of the SEC (we are talking serious money here) are allowed to invest through them. The regulation around these is relatively strict due to the high risks that they carry and also to prevent ill-informed and vulnerable investors from being scammed. Another form of these that exists- which would be of interest to those who like me are property lovers- are property crowd investing platforms such as Fundrise, which link property developers to investors. With these the developments usually range from residential, commercial, tourist resorts or large scale infrastructure developments. Like how awesome would it be to own a piece of a renowned hotel building in one of the most expensive parts of the country?
But of course friends, as our parents have taught us well enough: ain’t no such thing as free lunch. And so, accordingly these investments usually come with attractive rewards linked with a considerable amount of risk. However, the venture capitalist rockstar of all time, Warren Buffet, once said that risk comes from not knowing what you are doing. So perhaps the journey starts here with educating ourselves, learning, growing our wealth as we do. Until we are finally sophisticated enough to be recognized as Accredited Investors so we can get the share of the bigger and juicer pie and still make a positive impact in the lives of many as we do.
Investopedia Accredited Investor definition: A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Accredited investors include individuals, banks, insurance companies, employee benefit plans, and trusts.