When you’re about to invest in a company you ask questions; you check balance sheets; you engage in due diligence, discovery and check criminal records. You meet the team. All these things are as true for investors using crowdfunding services as it ever has been, but author Dan Marom thinks these services make it even easier to make good investment decisions.

Crowdfunding wisdom

“I think crowdfunding is a crucial toolkit for an entrepreneur,” Marom, who wrote The Crowdfunding Revolution tells the Irish Times. “It’s the democratisation of entrepreneurship.”

Kickstarter isn’t the only crowdfunding site in town, he explains, there’s peer-to-peer lending, equity, donation and reward-based funding services — many of which are included within our directory of services.

While reward-based crowdfunding can be characterised as little more than buying a product in advance, equity-based crowdfunding means much more:

“It’s very popular to say it will destroy conventional venture fundraising, but my personal view is that the future lies in a synergy,” he says.

Can’t fool all the people all the time

You see, the advantage of pointing the crowd at business ideas is that it means those ideas come under far more oversight than any individual investor can possible deliver. You have a crowd of experts taking a look, rather than just the limited number that may exist inside your investment company.

“Sometimes it’s wiser to have the crowd do due diligence,” Marom notes, and while the crowd may not have complete expertise in the business it is being asked to look at, it’s a start. “It’s not easy to fool the crowd, but it could happen,” he says.

The potential positive impact of crowd-based decision making concerning new business ventures is one thing, but there’s another consideration that should please investors: In most cases the business itself has been vetted by the crowdfunding service.

Watch the line

Savvy investors already understand this, of course, which is why so many funding rounds fall around the 30 percent to 40 percent funding mark — usually around the line at which a founder’s personally aquired funds shut down. Businesses that rise above that line are potential investments for seasoned crowd investors, as achieving this means either the idea has impressed a lot of people or the people behind the idea have figured out their marketing.

There’s more in future, of course, Marom believes that it won’t be too long now until big firms begin to crowdfund ideas: “not just funding, but also crowd-sourcing new ideas and also, crowd-sourcing execution”.

Read the whole interview here.

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Greg Simon is CEO of health-focused crowdfunding service, Poliwogg. He recently sat down with Equities.com to talk about how the crowd can fund a healthy crowd — and why these investments make so much sense.

Discussing recent US rule changes (the JOBS Act) which enable a wider number of investors to take equity positions in crowdfunding projects, Simon notes that the previous regime posed problems for health-focused firms: they could get early funding but this became harder in the mid-game.

“Well, it’s been very expensive because health care companies need a lot of money and before the JOBS act they could only have a certain number of investors. So it made every investor give them a whole lot of money which kept a whole lot of people out of the game because they couldn’t afford to diversify with those levels for minimum investments,” he said.

Another problem was that in the past you weren’t able to generally announce what you needed investment for, it was necessary to talk to investors one at a time. This meant you only had a limited number of people you could convince.

“So if you’re raising money for a company that’s working on a treatment for Parkinson’s disease, you can’t tell anyone unless you know they’re wealthy enough. That means you have to go to investors one at a time, and that’s a very lousy way to raise money. We wouldn’t be able to sell many cars if we had to sell them that way,” he said.

Simon predicts health-related investments will attract a wide number of investors, and suggests these investments may mean big changes for health care:

“People have the opportunity now to put their money where their heart is in terms of their health interest. They can invest in the companies that are investing in them, that are trying to create new therapies for them but need a lot more money than the venture capital industry is willing to provide.”

He hopes these changes in investment rules as they relate to crowdfunding services will enable “a lot more” health-related startups to bring their idea to light.

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