There are several reasons you may want to invest in a small business’ equity crowdfunding campaign:

• to make a return on your investment;

• to help a friend or acquaintance launch their business;

• to support a business or industry you believe in or want in your community (also known as “locavesting”);

• to diversify your investment portfolio;

• to benefit from tax credits if an investment has associated tax credits such as flow-through shares if in the mining industry or an eligible small business tax credits under the British Columbia Small Venture Capital Act;

• to potentially be involved in the next big thing;

• to put something back or pay it forward if you yourself were successful;

• to support a new creative business idea by providing financial support, general support, feedback and guidance;

• for the perk offered in addition to the obtaining an equity interest; and

• for the fun of it.

The reasons for investing are unique to each individual investor and equity funding campaign.

Angel Investing

Angel investors are high net worth individuals who meet the definition of an accredited investor. They tend to invest in business sectors they are familiar with and on founders/teams they believe are coachable. Angels find investment opportunities through memberships in angel groups, angel forums, pitch days, tech forums, word-of-mouth and blind luck.

Angels take a lot of time to conduct due diligence on the business, the competition, industry and the team involved.  Getting to know the team and watching how they perform over time is the key determination Angels use to decide whether to invest or not. Angels negotiate the valuation of the business and the terms of their investment with the founders, often pushing the pre-money valuation downwards.

Angels tend to be active shareholders. They often open up their business contacts and share their personal knowledge and experience with the founders of the businesses they invest.  They also tightly monitor their investment and expect regular updates and phone calls from founders.

Equity Crowdfunding

Equity crowdfunding investors are not necessarily high net worth individuals, but are likely comfortable.  They tend to make their investment decision based on whether they like the product or service of the business and the perceived size of the market. Crowdfunding investors find investment opportunities on online funding portals, which appeal to their interests or location. Crowdfunding investors seldom meet the founder or team behind a business.

Their due diligence activities is focused on the information and interactions on the funding portal. Any due diligence conducted off the funding portal is limited, as the size of the investment rarely justifies a more extensive due diligence process.  The founders of the business set the pre-money valuation of the business and terms of investment.

Crowdfunding investors only choice are to walk away from an investment if it is over-valued or over pay for the investment.  Crowdfunding investors tend to be passive shareholders.  Crowdfunding investors are likely to have limited input into the business or ability to monitor their investment or get information from the businesses they invest after the offering closes.