Crowdfunding: A bad experience or an opportunity?
Beware of fraudsters when it comes to crowdfunding, particularly in countries that have problems with investment culture and financial literacy. A bad experience, as well as opportunities, could be waiting for investors who are not aware of the risks of such fundraising
TURKEY had not taken any bold moves when it comes to crowdfunding – funding a project and businesses by raising small sums of money from pools of investors – until recently.
Although they seem blooming, these steps should not be deemed successful until they prove as such for entrepreneurs and until investors see their potential returns. But successful funding can cause the actual size of risks to go unnoticed.
It is not the right approach to claim that every investment will be successful. Online forums may seem to be ideal for crowdfunding, as they offer large reach capacity, scalability, easy access and ease of record keeping.
But still, these features also make it easier for scammers to set up dubious ventures to attract crowdfunding investments.
Moreover, they can be set up using the vulnerabilities of the platforms, despite all the measures taken. After all, the steps taken to prevent fraud also raise the capital access barrier of an honest entrepreneur. It is necessary for platforms that make up the scalepan to be very careful. There is also a greater need for data that will allow the small investor to take the right steps to make inquiries.
EVERY ROSE HAS ITS THORN
A business baked by crowdfunding carries an arguably greater risk of failure than a business funded by venture capital or other traditional methods that offer experienced professionals to help save an enterprise from the challenges of early development.
The success of an enterprise cannot be guaranteed only by financing. Even promising enterprises can fail without an adequate business plan and support structure.
RETURN CAN TAKE YEARS
Every investor expects some return in the future. However, returns on equity in crowdfunded ventures can take many years to materialize.
For instance, management may deviate from the business plan or have difficulty scaling the business. Over time, this can lead to capital erosion rather than wealth creation. Since it ties capital that can be used elsewhere, there may be an opportunity cost that you should consider depending on your investment.
GROWTH POTENTIAL
When you are skeptical, the question arises whether a company will use crowdfunding as a last resort. For example, if a company is unable to attract capital from traditional startup funding sources such as angel investors and venture capitalists, perhaps it will turn to crowdfunding for one last chance.
If this is the case, it becomes likely that startups that receive crowdfunding will be more mediocre investment opportunities with limited growth potential.
Investing through crowdfunding carries risks such as greater failure, fraud, dubious returns, vulnerability to hacker attacks, and mediocre investments.
But it also offers rewards such as great return potential, a higher degree of personal satisfaction, the opportunity to invest like accredited investors and the possibility to stimulate the economy through job creation.
So, when investing, remember that there are opportunities as well as risks. Make sure that the platform is transparent, offers comparisons with data and presents basic data in full.
WATCH OUT FOR SAFETY
In recent years, hackers have exhibited an alarming ability to access leading companies’ and financial institutions’ data, which seems unbreachable, as well as credit card details and other valuable customer information. There is a similar risk for crowdfunding portals and platforms that are vulnerable to attacks by hackers and cybercriminals. Therefore, in addition to researching the investment itself, make sure to take a close look at the platform as well.
When looking at global crowdfunding platforms, there are several sites worth considering, including Kickstarter, Indiegogo, Crowdfunder and GoFundMe. At the moment, there are currently only a few platforms in Turkey that have obtained permits by completing legal obligations and received similar investments.