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Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms by Matthew R. Nutting, David M. Freedman

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CHAPTER 8

How to Invest, Part I: Portfolio Strategy

A Three- to Five-Year Plan for Building an Equity Crowdfunding Portfolio

Angel investors have various motives for making risky investments in startups and early-stage companies. Those motives can be financial (seeking portfolio diversification and superior returns), personal (supporting particular entrepreneurs), social (boosting community development, renewable energy, etc.), expressing brand loyalty, driving innovation, and others.

This chapter is for investors whose motives are largely financial and who want to learn how to diversify intelligently and maximize their return on investment.

Focusing on return on investment (ROI) does not mean totally ignoring personal and social motives. But successful angel investors caution that you should identify your primary motive before you begin. If your primary motive is personal or social, then seek to maximize your intangible rewards, but do not expect your equity crowdfunding investments to be financially rewarding (and be pleasantly surprised if they are). Conversely, if you really want to achieve superior ROI, then your personal and social motives should take a backseat.

Becoming a financially successful angel investor requires a disciplined focus on the fundamentals that we cover in the next few chapters. Because equity crowdfunding investments are risky and illiquid, if your motive is primarily financial, we advise that you make such investments only if you learn and apply these ...

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