Heart vs. mind

Is the Spanish investor ready for a professional approach to their startup investment? Is the Spanish private investor prepared to invest in startups?  Is any private investor really reading the information we publish about the projects or do they not go further than the purely marketing approach that makes projects so eye-catching? 

Through the latest newsletters that readers have received from Fellow Funders, we wanted to highlight two relevant ideas: 

  • The private investor shall realize that acquiring a diversified portfolio with long-term investments is key, as it means to keep their standard of living after retirement. In our opinion, alternative investments, such as startups, should be part of this portfolio up to 10%. 
  • Investing in Equity Crowdfunding is a high risk investment, which is not ideal for investors who look for guaranteed profitability, even though the degree of assumed risk is related to the expected profit

The startup investment world has been out of limits for the private investor. 

This world is full with “odd” individuals who use an “odd” jargon and companies (startups) that have “odd” business models. It is a place where information flows through “completely informal” channels.  Oftentimes, private investors who enter this world encounter different issues such as partner agreements, company valuation, monitoring of investments, , that result in them giving up.  

The risks were in no way worthy despite the possible profitability that could be obtained.  In the end, this world was reserved for “initiated” investors; some even said that they should be “profiteers” rather than “initiated,” and for big professional investors (individuals or companies). 

In this peculiar ecosystem, the only real possibility for private investors who finally decided to invest was to join a guru in a few specific projects. These gurus were known in the ecosystem as someone who “had a Midas touch.”  

On very few occasions, these investments turn out well but more often than not, the penny drops, and private investors find that they have been taken for a ride. Their investments had volatilized. Nonetheless, the gurus sometimes exited their investments with lower losses. 

At Fellow Funders, we are trying to change this status quo relying on our Equity Crowdfunding platform: 

  • In multiple newsletters we have explained all the concepts that seemed important to us. 
  • We have carefully developed the “Fellow Funders Academy” in our platform. There, users can formulate questions that may arise about equity crowdfunding and alternative investment at any time. 
  • For each project we present to private investors, we carry out a Scoring, based on our own algorithm and with a component of minimum subjectivity. Projects must have a minimum score. We also carry out a Pre-money Assessment, again based on  our own algorithm. We require the signing of a Partners Agreement, and we carry out an Objective Valuation Report, where we indicate the strengths and weaknesses and give our objective opinion about a company. 
  • All projects that we present on our platform are obliged to provide information on their economic-financial evolution during the next 5 years so investors know their evolution

Considering all the above, at Fellow Funders we want private investors to have the possibility of approaching the world of startup investing with professional tools that were reserved for large, highly specialized investors up until now. 

Sometimes, we are asked some questions that we do not know how to answer. Is this a correct approach? Is the Spanish private investor prepared for this professional approach? Does the Spanish private investor value being able to access this type of “support“? 

At  Fellow Funders we consider that, in Spain, the world of the alternative investment (especially crowdfunding)  is affected by excessive marketing traits.  

The projects in which we consider investing, we are offered to invest, or the ones we end up investing in are so eye-catching. However, as private investors, oftentimes we do not stop to think whether it is a good investment, if there are real possibilities of obtaining profitability, or even how to stay in touch with the company we have invested in to know how the business is going.   

This attitude appears to be rather interesting, especially if it is compared to the immediate and thorough information demanded by investors when the investment is done in an organized market such as the Ibex.  Could it be that for Spanish private investors investing in startups is similar to gambling? 

At Fellow Funderswe stand by the idea of equity crowdfunding investment as an attractive product. However, investors must always be informed about the necessity of diversifying their portfolios and the risks involved.  We believe that the time has come for private investors to follow a professional approach with this type of investment

The marketing approach used to attract private investors is not bad, but it can never be the only factor to consider.  A thorough Scoring of each project must be carried out. An Objective Valuation of each companies must be done. The rights of future shareholders must be safeguarded with a suitable Partners Agreement. And finally, keeping track of these investments must be permitted. 

Providing professional tools and collectively creating a climate of trust and long-term relationships are requirements for the development of the entrepreneurial ecosystem in Spain thanks to the access of private investors.  

Otherwise, the quick-buck culture will prevail, thus creating a bubble that will finally explode damaging especially the private investors. 

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