It has become easier for regular folks to buy stock in startups, but doing so is risky. In case you are tempted, here’s what you need to know.
— Invest only what you can afford to lose. Many of the companies raising money through crowdfunding are in their very early stages. Some haven’t made or sold any products yet and are raising the cash to do so. The businesses could fail and you may lose all your money.
— Your investments are not easily accessible. The shares you buy in a startup may be hard to sell if they are not listed on a stock exchange. And making money on your investment could take years. In most cases, the company would need to be bought by a bigger company or list its shares on a market before you will make any money.
— If you plan to invest, research the startup. Ask for any investor presentations that can tell you more about the company’s finances, business plans or what it plans to do with your money.
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— Know how much you can invest. Depending on which rules the company is using to raise funds, there might be limits on how much money you can invest.
— Fraud is possible. If you think you are a victim of fraud, you can contact your state’s regulator. The North American Securities Administrators Association has contact information at: http://www.nasaa.org/about-us/contact-us/contact-your-regulator/ .