Research and Editorial Staff

June 18, 2019

Crowdfunding. You’ve probably heard of it, and most likely interacted with it in some form or fashion. A creation born wholly from the internet, crowdfunding operates on a simple concept – raising large amounts of capital through a high quantity of (mostly) small donations. Although offered by thousands of websites, the vast majority of crowdfunding participants have used either GoFundMe, KickStarter or Indiegogo.

J. J. Wyatt – largest crowd-sourced fundraiser in history

GoFundMe is used for charitable donations – participants donate money directly to surgery patients, flood victims, memorial funds and thousands of other causes. In 2017, Houston Texans player J.J. Watt was able to raise over $41,000,000 for Hurricane Harvey relief through crowdfunding – by far the largest total ever recorded. ESPN Aug 27, 2018

KickStarter and Indiegogo are funding tools used by startups and entrepreneurs. See an idea that you like and donate to help it come to life or buy it before anyone else can get their hands on it. Like most, these sites will take a bit off the top to ensure their revenues stream.

But how does all of this relate to investing?

For one thing, the passage of Regulation Crowdfunding or Reg CF in 2016, which gave individual investors (good old ordinary people) the chance to invest in equity crowdfunding. Equity crowdfunding allows regular people to figuratively rub elbows with private equity firms, venture capitalists and angel investors.

A form of pre-IPO investing, equity crowdfunding lets you buy shares of startups, hopeful getting a piece of fortune-building and ground-breaking growth. They can be a good source of investment choices.

As with any type of investment, there are some tips and tricks necessary to navigating this field. We recently came across an article entitled “Don’t Make These 3 Common Pre-IPO Investing Mistakes” that Joseph Hogue and his team at Pre-IPO Millionaire had published on the Nasdaq website several years ago.  These principles stand the test of time.

Not Doing Enough Due Diligence

How much time do you need to put into research and due diligence before parting with your money? Hogue cites a 250-person survey of angel investors that found the average answer – a whopping 40 hours. Angel investment firms have researchers on staff to handle some of this workload; you might not have 1,000 spare hours per year to devote to research and due diligence. Don’t let this daunting amount of time discourage you – it only takes one great investment to make a difference.

With that being said, lean on others to help you do the research you can’t; Hogue’s newsletter, which unfortunately is not accepting new members at this time, was one of many that produce research on companies you most likely have never heard of. They can provide you with a launching pad for your own research (consider this a second source for investing ideas) or can pinpoint trouble spots you may want to investigate further.

Investing in Unfamiliar Industries

Have you ever heard about a flying car that will change the way we travel forever? Every six months there seems to be some eccentric millionaire attached to a car with wings. Yet you never hear about Ford, GM, BMW or Volvo investing in these. That’s probably because they know their market and understand that a flying car just isn’t practical.

You should exercise the same caution as the big auto companies – don’t invest in industries with which you’re totally unfamiliar. It can be easy to get caught up in the excitement around an idea, especially if it’s in a growing sector like MedTech, the Internet of Things or “red-hot” Cannabis. Try to stay in your lane – focus on industries where you can at least gauge the climate, competitive landscape and any potential challenges.

Hogue offers two solutions to this problem:

1. Don’t venture too far outside your areas of expertise. You’re better off sticking to industries in which you’re somewhat knowledgeable or at least understand the terminology; the limits created by this strategy greatly outweigh the losses you could incur by reaching.

2. Team up with investors who specialize in different industries. This doesn’t mean you need to consult a neurosurgeon or Harvard MD before investing in MedTech. Just make sure you’re working with or have access to a group of people prepared to commit themselves to being experts (to a certain extent) in a certain field. Local angel investor groups or the dean of the business school at a nearby university may be good places to start looking.

If you don’t know other investors, subscribe to industry specific or strategy specific newsletters like Green Leaf Investing, which focuses on Pre-IPO investing and micro-cap public cannabis companies. Create a hybrid portfolio that combines investments learned from newsletters with opportunities you find within your industry.

Failing to Diversify

It can be hard to get your head around these two ideas Hogue presents back-to-back. How can it be a folly to invest in unfamiliar industries and yet also a mistake to fail to diversify? Diversity doesn’t have to mean investing in totally different industries or going outside your comfort zone. It’s more a statement about safeguarding your investments so that one big wave doesn’t sink the whole ship. Be wary of macro-level economic factors that can tank a specific industry.

Diversification is just as important for Pre-IPO investing as it would be for a normal stock portfolio. Consider every side of the industry you’re investing in and see if there are chances to diversify intra-industry. Apply this thinking to Green Leaf’s area of focus; for an example: CBD oil and derivatives reside in the same overall industry as industrial hemp, but, due to different regulatory environments, deal with different macro-level economic factors. When considering your Pre-IPO investments, make sure that you can protect your overall financial health and can smooth returns when industries falter.

Ride the Green Wave

Green Leaf Investing serves as a guide for investment opportunities in the exploding cannabis and cannabis related industry. We cover Pre-IPO private and micro-cap public cannabis companies that have been vetted and we hope will spur and sustain entrepreneurship and innovation in the industry while providing our investor community with exception return opportunities.

To learn more about opportunities in the U.S. legal cannabis sector, take a look at our website: Green Leaf Investing.

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