By Crowdinform and CrowdedHero
The role of a crowdfunding platform is very important when investing in equity crowdfunding, therefore investors need to understand based on which criteria they should choose a platform.
Let’s start with the fundamental things:
Language: choose a platform that supports languages that you know since you need to understand very well the information about the investment.
Currency: Equity investments are long-term investments, so if you invest in a currency other than your main currency you equire additional risk of currency fluctuations.
Region: The platform’s country of origin is not so important by itself since European regulation came into force and requires equal rules for all EU countries, but since platforms tend to choose deals from their region and offer them on the platform, make sure you understand a particular region risk.
Next, let’s have a look at the legal and regulatory
Funding structure: Given that it is rear that an equity crowdfunding investor becomes the direct owner of shares in the company he invested in due to high expenses etc., but rather he has indirect ownership via so-called SPV. For investors, it is important to understand how the funding structure works and to choose platforms where this process is clear and matches investors’ expectations.
Regulation: License and regulations provide the investor with additional assurance that a platform is monitored by government authorities and plays by the rules. So it is most important to choose regulated/licensed platforms.
Tax: There are different taxation policies across Europe therefore before investing make sure you understand your tax obligations and rights.
Platform functionality can improve investing substantially:
Rating: Frequently the platform applies internal or external rating that indicates the quality or risk of the deal. If you have made sure that you trust the rating methodology and platform, then the rating can be the main guide when choosing investment deals.
Direct communication tools with project owners. Forum and direct messaging tools with company owners where you are investing are crucial while looking at the platform. Investors should have the option to ask questions and communicate directly with Project owners.
Secondary market / Bulletin board: This is a tool that allows investors to sell their investments like in the stock exchange. This is a rear thing since EU regulation clearly defines how it should be performed, but such a tool makes your investment way more liquid.
Last but not least factors:
Data set and data quality: Receiving good and structured information about a fundraising company is a key precondition for making the right investment decision. New EU regulation defines what minimum information should be presented on the platform about each project so-called key investment information sheet (KIIS), but a platform to do extra and present information in a more convenient way to speed up and improve the decision-making process.
Pricing: Check the prices payable by investors they might substantially differ by platform. If the platform charges investors it is better to choose a platform that applies a success fee since it shows that the platform is interested in ensuring higher returns.
People behind the Platform: Point attention to Top management with relevant Education and experience in corporate finances, investments, merging & acquisition, Fintech, and crowdfunding. Look for Social proof, the public reputation of the people who run the company, it’s extremely important to avoid the risk of losing your capital.
We wish you successful investments!
Crowdinform and CrowdedHero
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