Crowd funding (shares)

Crowd funding (shares)


Even riskier than handing out loans to companies seeking crowd funding, is buying shares in those companies.
Not only is the chance of losing one's investment quite massive, because of many companies failing in their early years. In addition there's the question about how to cash in if one of these companies does turn out to be a good investment, since none of these shares are publicly traded.


Looking into 20 companies in a specific industry which I happen to know quite well (an absolute pre-requisite for anyone considering investing in startups or young companies), a few things really stand out:

• Valuations are often sky high, regardless of the method these companies have used to determine their "current value"
• Even if their usually very optimistic projections are taken for granted, only 3 out of 20 would reach this valuation in 3 years time taking current assets and predicted profits as a comparison basis. If one was to invest an equal amount in all 20 companies, in 3 years from now this investment would have lost 60% of its value
• In 5 years time, still only 8 out of 20 would reach or exceed the current valuation. Again assuming equal investments in all companies, the portfolio would be at -10% compared to the original investment
• Average period required for an investment to break even: 7-8 years
• As most of these are quite young companies or even startups, one would expect the first years to be loss-making and pretty much all results to follow the classical hockey-stick. However, having to wait 7-8 years before seeing any positive returns is a hefty risk and that's assuming none of these companies would tank (isn't the average chance of a start-up going belly-up 80%?) and that they all hit their projected financial results...

Narrowing them down to 6 companies with a strong story and business case, does significantly improve these statistics though this is again assuming they all survive and nicely reach their projections:

• In 3 years time, expected loss of -40%
• In 5 years time, expected 4 out of 6 companies start yielding a positive return on investment with the portfolio being at +35%
• Average period required for an investment to break even: 5 years

Way too early to tell how these companies will fare. Many have already revised their projections downwards or shown actuals that are significantly below the initial expectations.

Definitely to be continued... Curious to see how the results will look like in 3-5 years and where each of these companies will be.