Picture your favorite sports team.
Now imagine that you’re sitting on your couch, browsing their website before a game…
When suddenly you see that you can buy a piece of the team!
You wouldn’t just be a fan anymore… you’d be an owner. You’d probably become even more passionate.
I’ve been a New Yorker for 20 years now, so I might catch some flack for what I’m about to say…
But I grew up in Boston… yes, I’m still a Red Sox fan… and if I owned a piece of the team, I’d be prancing around all year wearing red and blue face paint.
That intense level of passion is what’s behind a new trend in equity crowdfunding:
Start-ups are raising money from their most avid users.
As this trend has gathered steam, a new crowdfunding site has popped up to make the investment process even easier. They believe we’re witnessing the future of fundraising. And as you’ll learn in a moment, some smart VCs agree.
But first, let’s take a look at what’s happening – and how you can benefit from it.
Invest In What You Know
“If you like the store, you’ll love the stock.”
This principle is from legendary money manager, Peter Lynch. His 29% annual returns make him one of the most successful investment managers of all time.
Lynch believed that individuals could outperform the “professionals.” To do so, they just needed to buy stock in companies they were customers of.
His logic was that customers have “boots-on-the-ground” insights that couldn’t be detected by a financial analyst – the guy who’s sitting deep in the bowels of an office building.
The same theory applies to early-stage investing.
Mark Peter Davis, one of our Venture Capitalist friends, recommends that people invest in businesses they know and can relate to.
“If they can’t envision being in the shoes of the customer,” he says, “it’s hard to pick winners and understand what makes a product attractive.”
We couldn’t agree more.
Which is why we think you should check out a company called Alphaworks.
Alphaworks is a crowdfunding platform.
They help start-ups raise capital.
In particular, they focus on start-ups aiming to raise capital not from passive investors, but from the start-up’s most passionate users.
To make it easier for a start-up’s users to invest, they built something called the “Invest Card.” A start-up can insert it right on its own website.
The card looks like a “subscribe to our newsletter” form – the kind you see on many websites, including ours. But instead of using it to sign up for a newsletter, people use it to make an investment.
To illustrate the potential of this strategy, consider the following scenario:
What if you’d been a user of Facebook, back when it was just a private start-up?
If you’d come across this card, you could have bought shares of Facebook.
As an early investor, you would have been incentivized to use Facebook even more, and to tell even more of your friends about it.
Facebook would have grown even faster…
And you’d be sharing in the profits today.
Profitability and Sustainability
Alphaworks believes that businesses owned by their users will lead to more profitable and sustainable organizations.
Professional investors like Fred Wilson from Union Square Ventures (investor in such monster successes as Twitter, Zynga, and Tumblr) seem to agree:
In a blog post last week, Fred wrote about how companies should “mutualize” (sell shares to their users), so users can participate in the company’s upside.
As Fred wrote, “The result could be a much more sustainable and lasting network.”
Do you think Fred and Alphaworks are onto something?
Do you believe the world is entering a new period defined by community ownership?
If so, you can be a part of it by investing in crowdfunded opportunities.
See What It Looks Like
To see an example of Alphaworks’ Invest Card, check this out:
On the right-hand side of the page, you’ll see the Invest Card for a company called Quibb.
Quibb is a modern-day news journal.
It’s a community made up of people like us – whether we’re entrepreneurs or architects or almost anything else. It lets us share what we’re reading for work with like-minded people.
Quibb looks like a good fit for Alphaworks. It’s a great example of how community ownership could benefit the company – and all its users.