How to Start Equity Crowdfunding Investment Fund

How to start equity crowdfunding investment fund:

Starting an equity crowdfunding investment fund may be the perfect step into a full blown venture capital or angel investing career. Equity Crowdfunding investment funds could almost be like the minor leagues of venture capital. Smaller investments, easier deal sourcing, and structured contracts could be just what you need to start a small fund. If that fund is wildly successful raising capital for your next fund could be easier than you had imagined. There are numerous “how to” books on the topic of venture capital investing. As well as starting a venture capital fund. I would recommend checking those out prior to starting your fund. It is important to remember that although venture capital and angel investing are basically the same thing as equity crowdfunding investing there are going to be a handful of things you will need to keep in mind with equity crowdfunding. Here are VenReports suggested 5 steps to starting an equity crowdfunding investment fund.  Whether you are investing your own money or others the five steps will help you begin your journey as an equity crowdfund investor.

1.)    Finding your niche– While equity crowdfunding is a niche of its own and equity crowdfunding portals have great deal sourcing and weed out a lot of the mucky deals. You need to be sure to create your niche for your fund. Investors prefer to invest in industries they know and trust. Also it makes no sense for you to be investing in consumer goods, when your area of expertise is real estate. Do you research and find companies you believe in.

2.)    Decide what type of equity crowdfunding investment fund you will be. Venture capital funds will typically invest other people’s money and Angel investing you invest your own money. Knowing what type of fund you will run is imperative. Raising money to invest other people’s money with the niche of equity crowdfunding may be difficult at first as the model has yet to be proven. That being said if you are successful at this and make a good return there is a good chance of becoming an industry leader very quickly.

3.)    Legal docs – With anything make sure you are legally covered. When it comes to money people typically don’t believe in good faith agreements. Luckily or Unlikely depending on how you look at it with equity crowdfunding the startup company typically already has investment agreement already drawn up, and typically doesn’t differ to often between the individuals investors. Equity crowdfunding fund investors investing quite a bit more than the minimum investment may be able to negotiate more favorable terms.  If you are creating a venture capital fund where you are investing other people’s money in equity crowdfunding you will also want to make sure you have an agreement often times this document is called a private placement memorandum

4.)    Know the rules – Equity crowdfunding rules are still being drawn up, this is no exception if you are looking to create an equity crowdfunding investment fund. Check the SEC.gov website frequently and stay up with the industry news. If you are unsure find an equity crowdfunding organization or friend that does know the rules.

5.)    Exit – By far the most difficult part of creating an equity crowdfunding investment fund. For you to make money you will need the companies you invest in to exit. This is plenty difficult for an angel or venture capital investor and will be 10 times harder for equity crowdfunding investors. Typically the venture capitalist or angel investor will provide their expertise to help the startup succeed and lead to a successful exit. With equity crowdfunding investing, there has the potential of 100s of investors. Typically the startup will not have time to cater to each one of the investors individually, and unless you provide a unique and profitable value add to the startup, good luck getting their attention even though you just dropped a significant amount of capital on their business.

Overall starting an equity crowdfunding investment fund is actually fairly simple. You will need to do a lot of planning, and will require a lot of work. While you may not be able to get any institutional investors at first the equity crowdfunding investment fund model just might work to get your feet wet and into the game of investing in small business.

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