Equity crowdfunding offers investors an opportunity to participate in an early-stage venture. The beauty of this style of investment offering is its inclusivity. In other words, platforms like Fundit democratize the process of investing in start-ups, enabling the average American to get in on the game.
Everyone qualifies to invest, whether you're an accredited investor or not. However, there are caveats.
We’ve all heard the success stories of investing in a start-up company. Indeed, some of the biggest companies listed on the major exchanges today were once backed by venture capital – an investment firm that specializes in financing early-stage companies. However, it’s important to remember that a lot of these examples you hear about are best-case scenarios. The bottom line: past performance is no guarantee of future returns.
For anyone new to the world of investing, it is important to educate yourself about the differences between being an accredited and non-accredited investor.
People or businesses that legally buy and sell securities without having to register with financial regulators are considered accredited investors. They must meet notable requirements in income, net worth, professional experience, or asset status. These investors range from wealthy individuals to banks and Wall Street brokers.
When investing, risk and reward go hand in hand – that is, there are always associated risks when pursuing reward. That speaks to the core of what is known as Modern Portfolio Theory (MPT).
MPT, devised by Nobel economist Harry Markowitz in the early 1950s, is a financial model that assumes investors want to take a minimal level of market risk to capture favorable returns for a given portfolio of investments.
Like anything in life, it’s important to approach new opportunities cautiously. Whether that’s deciding on what college to attend, taking a new job, or buying a new car, we must do our own due diligence to make sure we have the greatest chance of success. Investing in a start-up company is no different.
But what exactly is due diligence and how can you take steps to mitigate risk when investing in a new company?