I have a new little passion. I invest small amounts in crowdfunding sites. Nothing major and no earth-shattering results so far. But it seems promising. I’ll give a summary of what I have found out so far.
What is Crodwfunding
It’s a way for the “crowd” to fund various projects where each contributes small amounts. As usual you can read more detailed definition on Wikipedia.
A large number of the current crowdfunding platforms that exist support various artistic projects – like new book or movie – and the backers get rewards in return. For example tickets for the movie, signed copies of the book etc. While this is good thing, it’s not really investing.[ad#normal-banner]
There are few types of crowdfunding sites that will be interesting for you as an investor:
- Equity based – where you get equity, usually in a legal entity formed for all the backers of the given project or company
- Profit based – where you “bet” on the success of a given project, usually by buying in bulk at discounted price, and make fixed profit when the product sells.
I could add “impact based” for investments you make solely for the purpose to make the world a better place. But this type works best when combined with the other two approaches.
The Crowdfunding Sites I Use
Before I share my experience here is a long list with lots of crowdfunding sites. Feel free to have a look at it and explore it. I’ll talk only about the ones I used:
This site lets you invest in the development of mobile apps at early stage. The possible returns are really high, sometimes up to 3-5 times your investment. The guy behind the site, Pascal, has great reputation. I exchanged few mails with him and I think he is honest and good guy.
Unfortunately the site does not seem to work very well. There are only few projects and they usually don’t get funded. When the project is not funded the deal doesn’t happen and you don’t make profit. Worse, their automated system doesn’t work well and the Paypal preapproved payment happens in every case so you’ll have to contact them for refund. They refunded me so I have no doubts in their honesty but it just doesn’t work well.
Appbackr works in very similar fashion. You buy in bulk copies of Android or Iphone mobile apps. When your copies sell (you don’t have to sell them yourself, the developer takes care for that), you make profit. The profit is fixed to 27% for apps in development and 54% for apps in concept stage. I already have one package bought and sold in about 3 months, and made 27% profit. This isn’t bad at all, that makes 9% non-compounded ROI per month.
But it’s not all roses. My other apps currently backed have about an year before they return the profit, if that happens at all. While 27% – 54% is great return even for an year you should have in mind that there is considerable risk that your copies will never sell, and you can lose your investment.
In general these sites bring more security to the app developers. Regardless the risks I’d love to see more similar sites that let you invest in other kinds of software, info-products or even tangible goods.
I love this site! I made 3 small investments in it and looking further to make more, regardess that I don’t know when/if I will see profits. It’s a typical equity based crowdfunding site that lets you invest in innovative companies and projects and own shares in them. And this time there are all kind of projects – not just apps, or not even just software. For example the project I invested most in is WakaWaka – a solar lamp for people who live in places where electricity is luxury. I believe both in the commercial success and the social impact of this project.
Symbid is a dutch site but it allows investors from all over the world, and you can buy shares with credit card. While many project descriptions are in Dutch, there are enough English ones to choose from.
This is not really investing but I decided to include it. You won’t make profits with Kiva. In fact you may want to donate few bucks to help its operations. It lets you lend money to small businesses in poor area of the world. Not only it lets you help the economy in these countries but your loans are returned, and you can lend them again, or even withdraw them if you don’t want to lend anymore. I really like this concept, because lending works better than donating. Lending helps people without turning them into lazy bastards. I’m trying to make a small loan every month. Soon I should be able to re-lend only based on the loans paid back and without getting anything else out of pocket.
Other Interesting Ones
I think the following sites also deserve attention:
http://www.crowdcube.com/ – equity based site, all kind of interestng companies and projects. Unfortunately it’s only for UK investors.
http://www.kickstarter.com/ – maybe the most popular reward-based crowdfunding site. I think it’s only for US projects.
http://www.inventure.org/ – if you are looking to make impact, you can invest in various social responsible projects. You can’t make profits, but returns can be reinvested in other projects.
That’s it so far. Any others that you know and I don’t?