Crowdfunders choose to evaluate past successes of entrepreneur as investment criteria

Perceived market potential and prior experience of an entrepreneur are the most important considerations for crowdfunding investors, research shows.

In a study of the attitude, motivations and behaviour of investors in businesses through crowdfunding means, the ability for an entrepreneur to have successfully executed previous ventures has been shown to be a big deciding factor.

As well as prior experience, the perceived market potential of the potential business venture is one of the two most important factors in the decision making process.

The study, carried out by equity-based crowdfunding platform Crowdcube, reveals that two thirds of those questioned specifically mention being ‘particularly moved by the idea’ of a business as the leading factor when deciding on an investment possibility.

Crowdcube also says that investors take their responsibility and risk as funders seriously and attempt to develop ‘personal policies’ toward reviewing ventures.

In attempting to mitigate financial risk, crowdfunding investor respondees cited two strategies: limiting the amount of money they are willing to invest to an amount they can live without and performing due diligence via research on a business.

Luke Lang, co-founder of Crowdcube, comments, ‘It is encouraging that the findings highlighted a high level of risk awareness and sophistication among investors; debunking the view that investing should be the preserve of the wealthy or experienced angel investors.

‘The new breed of “armchair dragons” say that crowdfunding gives them a meaningful way to make an impact on finance starved start-ups.’

Of those surveyed, a quarter of people (26 per cent) invested between £1,000 and £4,999; 21 per cent invested between £100 and £499; 17 per cent invest less than £100; 15 per cent invest between £500 and £999 and 14 per cent invest between £5,000 and £9,999. Some 9 per cent invest more than £10,000.

Crowdcube’s analysis of £4.25 million invested via its platform since launch shows an average investment amount of £2,400.

Tony Atkinson, a retired finance and operations director and investor through Crowdcube, adds, ‘I deliberately perform very little due diligence because the total amount I am going to invest in crowdfunding is not a significant proportion of my overall portfolio.

‘Spreading the risk among ten or more crowdfunded start-ups chosen for the experience of the entrepreneur and my interest in the market, as well as a gut response to the business idea and a review of the entrepreneurs’ answers to questions posed by the crowd, gives me enough insight to make a decision.’

See also: Top 10 crowdfunding platforms for businesses

Hunter Ruthven

Bernard Williamson

Hunter was the Editor for GrowthBusiness.co.uk from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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