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Should you invest in crowd funded startups?

All investors should be very careful about investing in crowd funded startups.

Most crowd funding platforms make their money from fees, not carry. They therefore care very little about the performance of the investments on their platform. They do almost no due diligence, less selection, and effectively no negotiation on valuation, and the results show.

Crowd funding platforms provide you with almost no information about the companies you can invest in. They cannot – these are private companies that want to keep their information private, and crowd funding platforms provide information to thousands or tens of thousands of people. Any information a company provides to investors on one of these platforms is effectively public.

Some companies that raise money on crowd funding platforms are good companies that are using the crowd funding platform as a marketing tool. That can make sense and it may be a great company, although possibly overvalued.

Many others are companies that were unable to raise from venture capital firms, syndicates, or big check angel investors. Those are the people who know the most and who definitely did get all the company’s private information before deciding not to invest. You do not want to eat the food they choose to leave on their plates.

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