How to Get Liquid on Your Equity Crowdfunding Investments

By Matthew Milner, on Wednesday, August 28, 2013

Few things are certain in this world; few things are actually guaranteed.

Ben Franklin famously put death and taxes on his list. But on a sunny summer day in August, I’m not so interested in addressing those dreary topics.

Guaranteed money, on the other hand — now there’s something that puts a smile on our lips and peace in our hearts. Especially when we’re talking about early-stage investments, the ones on equity crowdfunding platforms that are generally so risky.

So as a special end-of-the-summer treat — as a special “thank you” for being such loyal readers — we’re going to reveal how to make money in equity crowdfunding.

Guaranteed.

Is It Dividends?

Early-stage investing in technology or internet companies is an equation of high-risk / high potential return. It isn’t like buying a utility stock or real estate, where you can earn a steady dividend, month after month, year after year.

In fact, it’s exceedingly rare to receive a dividend from a start-up. 

First of all, most start-ups aren’t profitable. So there are no profits for dividends.

And secondly, even If the company you invested in is profitable, it’s unlikely that those dollars will make it into your bank account. Start-ups that make money usually reinvest their profits to grow bigger, faster. They’ll use those dollars to hire salespeople, for example, or for marketing, or to expand to a new territory.

Guaranteed money? No way.

Is It The IPO Cash Register?

What about making millions when the start-up you invest in goes public on the stock market? 

Keep dreaming. 

Despite the high-profile stock market debuts of companies like Facebook and LinkedIn, most companies never reach the necessary level of revenues, profits or predictability to go public. 

Nor is going public the modern dream of the average entrepreneur. Running your own company can be exhilarating; running a public company (especially after the beefed-up requirements of the Sarbanes-Oxley Act of 2002) is more of a headache.

In fact, the number of IPOs has been on a downward trend for a few decades. From 1980 to 2000, an average of 311 U.S. companies went public each year. After the tech bubble popped in 2000, the average dropped to about 100 per year. Overall, from 2001 to 2011, the number of IPOs plummeted 80 percent.

Guaranteed money? Not so much.

So How The Heck Do You Make Money?

If it’s not dividends, and it’s not IPOs, how do you do it? 

Here are a few hints:

Readers who follow our blog might recall that, last week, I wrote about a company called Qwiki. Qwiki was acquired by Yahoo for about $50 million.

And speaking of our blog, maybe you recognize the platform we publish it on. It’s on Tumblr. Tumblr was acquired by Yahoo for about $1.6 billion.  

Or maybe you saw the recent news that Google paid nearly $1 billion for a mapping company called Waze. Or that Facebook acquired Instagram for a cool billion dollars.

What do all these hints have in common?

They feature a start-up being acquired by a bigger company… for lots of money!

Guaranteed money? Yes, guaranteed. 

Now we’re getting somewhere.

Mergers & Acquisitions

Bigger companies desperately need the traction, talent and big ideas that live inside smaller companies. Big companies could try to build these assets themselves, but it’s a long journey, and the results aren’t certain.

So oftentimes, they just buy the smaller company instead.

This process of a big company buying a smaller company is called M&A. It’s short for “Mergers & Acquisitions.” It’s the main way that start-up entrepreneurs — like the ones who started Tumblr or Instagram — make their fortune.

And when they make a fortune, so can you.

And that’s how you make money in equity crowdfunding. Guaranteed.

Caveats

Now, to be clear, you still have to invest in the right companies.

And as my partner Wayne wrote about last week, you have to invest in the right securities of these companies.

But if you’ve been looking for a guaranteed way to make money in equity crowdfunding, look no further:

Invest in a company that gets acquired by a bigger company!

Best Regards,
Matthew Milner

Founder
Crowdability.com

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Tags: Venture Investing Equity Crowdfunding Crowdfunding Angel Investing IPO M&A Mergers And Acquisitions

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