Crowdfunding: three ways to challenge valuations and rates

I was having a coffee with a friend yesterday to discuss his idea of a crowd-funding platform for the diaspora, similar to HomeStrings, but focusing on SMEs (and slightly different from Lend a Hand). You got it, it is hard to find a niche in the crowdfunding space and to differentiate yourself. This discussion brought back questions I have often raised on the viability of the model, especially regarding the often too high valuation and too low rates offered. I talked about it here. So I decided to dedicate a part of my always exciting Sunday in the Hague to do some research on how some platforms are dealing with this. It looks to me there are these three main options for a serious investor:

  • Get an external advise on the industry and the valuation, with websites such as Allstreet or Equidam. They don’t however offer inputs on coupons and rates of fixed-income products offered on crowdfunding platforms;
  • Challenge the company directly as I saw it on Symbid, which is nice to have but absolutely useless. Company-led campaign will always be in the advantage of the entrepreneur, and I don’t see the company changing the valuation because few users thought so;
  • Follow a leading investor, such as on Syndicate Room, which I strongly believe is the right way to go. A professional investor, who is also investing (so we assume he has thoroughly negotiated the terms), proposes a deal, and you are invited to plug in few hundreds or thousands dollars. He might have a different strategy and portfolio, but it gives much comfort to follow his negotiated terms, than the terms offered by the company;

Because it is easy for me to give some ideas and suggestions on my blog, I will go ahead with the following:

  • Crowdfunding platforms should take a first-loss, which will fully align its interest with the investors’, instead of  simply “connecting” and charging fees;
  • The ideal solution would be a combination of “algorithm-based” valuations such as the one offered by Equidam, and  a group of “human” analysts, preferably based in India and other “low-cost” countries to make it attractive for the micro-investor. They will look at the deal and give you some inputs within 10 hours for instance. It is not ideal but better than an automatically generated report;
  • Users should automatically have a “challenge” button, like the “reporting” one on Facebook,  that triggers a reaction from the company or the platform to either adjust or withdraw the deal (but what is the incentive to do so if other less educated users invest anyways?)

As always, happy to read your comments ๐Ÿ™‚
Hatem Mahbouli

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