When thinking about investing in a company, there are certain factors that should be taken into consideration.
Clearly, the company’s past performance is a good place to start. Read over three years worth of financial reports, cash flow and profit projections and net worth of the company.
Secondly, it is necessary to ensure the management of the company you are considering has enough expertise. What are the team behind it like? Look for a strong knowledge of the industry, as well as covering the marketing side. The idea may be fantastic, but if no one knows about it because it isn’t marketed correctly, it won’t be a good investment.
Market analysis is also important – make sure there is a gap in the market for the business you are considering investing in. Start-up companies with too many competitors are no go.
Finally, and most importantly: don’t invest what you are not prepared to lose. With only 10% of new businesses surviving their first year, the risk is real and needs to be considered fully.
Whilst this last one may seem obvious, research by crowdfunding platform Crowdstacker suggests that people are actually more likely to think with their hearts than their heads when considering investments.
53% of people surveyed valued the idea of supporting local businesses and a good rate of return, over the chances of losing money. Nationally, it appears Scots are the safest investors; 34% prioritised risk over rate of return. Overall, less than a third of people take into account how the likelihood of losing all their money.
“The clearest message from our research is that people too often invest with their hearts, not their heads,’ explains Karteek Patel, CEO of Crowdstacker. “Investors should be asking themselves two questions before they invest. Firstly who am I giving my money to and can I see evidence that they are likely to use it responsibly? Secondly, what protections are in place to help me recover my money should the worst happen.
“If there is a satisfactory response to these questions, only then should you move on to consider the rate of return, or whether the investment supports your personal beliefs.
“Obviously an investment is about making your money work harder and getting a good rate of return, but for the majority of investors and savers out there, most of whom can ill afford to lose out, the priority should be how their money will be protected. Only one in five of the people we interviewed ranked security as their number one consideration.” Karteek continues.
Crowdstacker are an online crowdfunding platform that specialise in established businesses with a strong trading record.
The industry’s consumer protection and financial regulatory body, the Financial Conduct Authority, have confirmed that they are one of the first peer-to-peer lending platforms to be directly approved by them.
Karteek explains: “The FCA approval process is heavily focused on what platforms like ours do to protect investors, and as the industry develops further this will undoubtedly be at the heart of how successful crowdfunding platforms operate.”