Investing in private and/or early stage companies is very risky. Here are a few points potential investors should keep in mind when considering local food and drink deals.
Another traditional way to realize financial gain is to sell your shares on the secondary market. This will not likely be an option for most investors on CraftFund. First, there are significant restrictions on the resale of shares in private companies. Second, there is not a well-developed secondary market for these kinds of investments. At the end of the day, investors should go into deals with eyes wide open and expect to hold the investment indefinitely.
The financial return from craft food and drink investments is likely to take the form of dividends. Dividends are portions of profits that a company elects to pay out to investors instead of reinvesting back into the company. As the Harvard Business Review recently explained, equity crowdfunding could best function as a dividend model of investment: First, Angels and VCs are only interested in businesses with a clear path toward an exit, and those focused on rather large market opportunities. This leaves 99% of the businesses outside the realm of their framework. These 'Other 99%' businesses are often excellent niche businesses. They can be profitable, cash-generating concerns, quite capable of paying dividends to their shareholders. Food and drink investments will also appeal to investors seeking ownership experiences. Craft enthusiasts and foodies want to connect with the products they are passionate about. Equity crowdfunding will provide a means to turn these passionate consumers into owners. As we've written about before, Scotland's BrewDog is the perfect picture of the kind of ownership experiences we expect to facilitate on CraftFund.
Potential investors must assess their expectations going into equity crowdfunding. As a nascent form of investment made possible by changes to 80-year old securities laws, equity crowdfunding will only get off the ground to the extent portals, businesses, and investors are speaking the same language. If you are approaching equity crowdfunding as an armchair venture capitalist, CraftFund is not the platform for you. Instead, it would be best to use one of the many quality platforms out there that focus on technology and other similar industries. However, if ownership experiences, potential dividends, and the satisfaction of supporting local businesses is part of your language, then CraftFund might be a good fit.
Due diligence is simply the process of evaluating whether a particular deal is a good investment. It’s our belief that customers and local patrons are in the best position to conduct due diligence on local products. CraftFund conducts an initial level of due diligence to ensure that there are no bad actors associated with the company. From there it is up to the community to determine whether a deal is attractive.