Show Me Your Money Idea E-Book

Dwayne Anderson

• Herausgeber: Dwayne Anderson
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2017

Beschreibung

Finding an angel investor to fund the next big idea has always been a daunting task. The next difficult task is to gain marketing exposure. Together, these elements can make or break a startup. Until recently, these two were separate activities – you first find investors & raise money, and then you would allocate your marketing spend.

The advent of crowdfunding has disrupted the way funding and marketing is done – by combining these critical tasks and getting them done at the same time.

Crowdfunding – Venture Capital on Steroids.

With crowdfunding, you can set your terms, retain your company’s vision & culture, and bring several shareholders rather than just a handful – and most importantly get promotional boost that comes with this.

Furthermore, crowdfunding also allows you to offer shares and attract a lot more money! Entrepreneurs usually raise hundreds of thousands, and even millions!

This Book Is Your Blueprint on the “HOW”!

Crowdfunding has offer new avenues for startups and it is relatively easier to start a business than ever before. But it is also attached with a steep learning curve. Many ventures find themselves into deep waters without the real knowledge of choosing a platform, crafting a pitch and attracting investors.

Leseprobe

TABLE OF CONTENTS

SHOW ME YOUR MONEY IDEA

INTRODUCTION

CROWDFUNDING HISTORY AND EVOLUTION

PLANNING AND RUNNING A SUCCESSFUL CAMPAIGN

WHAT TYPE OF CAMPAIGN IS RIGHT FOR YOUR BUSINESS?

HOW DO YOU FIND THE NEXT BIG THING?

THE VALUE OF PATTERNS

GREAT IDEA, GREAT DESIGN

CROWDFUNDING STAGE I: DISCOVERY

CROWDFUNDING STAGE II: DEVELOPMENT

CROWDFUNDING STAGE III: PREPARING FOR THE PITCH

THE PITCH: GETTING TO YES

THE PITCH: LAYING IT ALL OUT

PRE-LAUNCH: ACCELERATING THE CONVERSATION

CROWDFUNDING DONATIONS

THE PRODUCT LAUNCH

CROWDFUNDING WITH EQUITY

CROWDFUNDING: THE PROMISE OF PUBLIC INFORMATION

READING THE FINE PRINT

PRIVATE PLACEMENTS

MARKETING STRATEGIES

KEEPING THE CROWD(ED) CONVERSATION GOING

THE PITFALLS OF CROWDFUNDING

Disclaimer and Terms of Use:

While all attempts have been made to provide effective, verifiable information in this book, neither the Author nor Publisher assumes any responsibility for any errors, inaccuracies, or omissions notwithstanding the fact the rapidly changing nature of the Crowdfunding and financing processes as practice by different portals and governance processes of each different countries and their banking systems.

Any slights of people or organizations are unintentional.

While the publisher and author have used their best efforts in preparing this book , they do not make representations with respect to the guarantees of income made. Readers are cautioned to rely on their judgment about their individual circumstances to act accordingly

If advice concerning financial matters is needed, the service of a qualified professional should be sought. This book is not a source of financial information and should not be used as such.

©Copyright 2017 Dwayne Anderson - Show Me Your Money Idea

INTRODUCTION

We have all heard the stories. The Ouya video game console raised $8.5 million from 63,000 backers. Musician Amanda Palmer raised $1 million dollars from 25,000 backers to fund her new album. And we know about local efforts for good causes, such as the $10,000 Salaam Garage NYC raised for a book that featured homeless teenagers who have aged out of foster care. Crowdfunding is all the rage, not least because it shows how generous people really can be.

Crowdfunding rests upon the pitch and the search for the Next Big Thing—the blockbuster hit. Crowdfunding is the new American Idol, so to speak, for early-stage companies. Entrepreneurs, creative types, and small businesses go onto portals like Kickstarter and pitch their ideas for the chance to attract millions of dollars and a fan base that creates buzz about the project.

A significant change in crowdfunding occurred on April 5, 2012, when President Barack Obama signed into law the JOBS Act. JOBS is an acronym for Jump-start Our Business Start-ups. That’s because early stage companies represent two-thirds of new job creation.

The JOBS Act has six parts, and one of them is titled “Crowdfunding.” The idea is to spread the funding of new businesses beyond the old sphere of investment bankers, sophisticated rich angel investors, and venture capitalists who typically invest in early-stage companies looking for blockbuster hits. Now the crowd, or the average citizen, can invest in the same deals as the venture capitalists. Everybody has the opportunity to get in on the ground floor with the next Google, Twitter, LinkedIn, Facebook, or Instagram.

How is this different from the examples I listed at the start of the book? To eliminate any confusion, there are two types of crowdfunding deals:

Crowdfunding donations with rewards. You can “invest” in projects such as films, music, and games by donating money. In return, the amount of your donations entitles you to a certain level of rewards. For example, a cool watch to be manufactured, a coffee table book to be created, or a new music album to be produced. In this type of deal, you receive no ownership in the company to which you donate (no equity).

Crowdfunding equity. That gives you the opportunity to make money by investing in the next big thing. Unlike crowdfunding with donations or rewards, crowdfunding equity gives you actual ownership in the company itself.

On the positive side, crowdfunding becomes a global Internet-based laboratory for investors and entrepreneurs to learn and perfect more efficient ways to match investors and entrepreneurs with capital and ideas that can make the world a better place to live. On the negative side, though, crowdfunding becomes a grand experiment with enormous possibilities that will bring out the best and the worst—generosity and greed; donations and deceit; blockbuster hits and bombs.

You now can get in on the ground level of the next Google or other companies that will soar to be worth billions of dollars. It is true that these blockbuster hits are rare. Yet they are not as rare as you might think. The venture capital world has many more blockbuster hits than household names such as Microsoft and Intel. Have you ever heard of Internet voice-over protocol technology company Genband from Frisco, Texas, that raised $500 million of venture capital? What about the Internet-based service DocuSign, for signing and delivering documents, which raised $122.9 million? These are so common that the Wall Street Journal publishes each year its Top 50 venture-backed companies that have achieved multiple rounds of financing and valuations from hundreds of millions to billions.

There is, unfortunately, a dark side to this rosy picture. With all the trumpeting of crowdfunding’s promise of new pools of capital, the brutal facts are that more than 75% of early-stage companies don’t meet their initial projections. The majority of early-stage companies go out of business entirely—some within just a few years of their founding. Others continue to struggle and are acquired by another company for a much lower price than originally projected. Most investors lose all their money in the high-stakes, high-risk game of early-stage company investing.

That’s why I have written this book. By comparing and contrasting the best venture capitalist approaches to early-stage company investment, Show Me Your Money Idea reveals the best crowdfunding strategies and techniques for entrepreneurs and investors to beat the odds. No one strategy is the best. Each strategy has its pluses and minuses. Each can be successful, depending upon the risk versus the rewards you want and can emotionally handle.

For example, take two venture capital firms, Accel and Dag Ventures, which deploy different but successful investment strategies in early-stage company investment. Accel looks for entrepreneurs in the garage with a “next big thing” and usually seeks to be the first institutional investor in the deal. Dag Ventures looks to invest when an early-stage company is more mature and has already attracted other venture capital investors in previous investment rounds. Yet both have backed the most up-and-comers on the Wall Street Journal’s Top 50 Start-ups list.

Besides venture capitalists, you will also learn the best investment strategies of Warren Buffett, Peter Lynch, and Benjamin Graham to beat the market and how these insights can increase your odds of winning in early-stage company investing.

The book is designed to answer the questions of two different groups involved in early-stage companies. The first is the crowdfunding investor. How do you know which company will be a winner? How do you monitor the trends and not get caught up in fads and short-lived hype and gimmicks in areas such as games or technology? You will get answers to key questions about investing. For example, is the ability to find good companies based on your education, IQ, age, or having money to start? Here’s another question: Which is more important—the idea or the entrepreneur? You see, once you step back from the glamour and excitement of crowdfunding, you are left with the cold, sober business of picking winners. You will want to weigh carefully how you can outperform the everyday crowd of investors and become successful like professional venture capitalists.

The other group the book addresses is composed of the entrepreneurs, small businesses, and creative types trying to get the money. In this book you will get answers for a wide variety of questions around crowdfunding. First, how do you get your idea funded? How do you draw instant traffic? How do you build a customer base (your list) or write and test your pitch for your product to get customers or investors to invest? A start-up company—and the savvy investor in that company—has to consider all sorts of baseline questions. For instance, how do you research new ideas for content and new products? How do you evaluate the potential competition? How can you increase your presence and influence on the web through social media marketing?

Make no mistake. The opportunities are potentially fabulous. Here’s an example of how crowdfunding rescues companies and ideas that had no other way to get the initial financing. Choi Yong-Bae, the chief executive of Chungeorahm Film, has had several box office hits in South Korea, but finding film investors is never easy. Trying to fund his film 26Years became difficult because of its politically sensitive subject. Choi pitched the top entertainment companies in South Korea, then investment funds and venture capitalists, but got turned down. Finally, Choi set up a crowdfunding website and raised $404,000 of his $4.1 million budget from over 12,000 donors in exchange for movie tickets and small rewards. Through social media and word of mouth the crowdfunding project created enough fans to attract wealthy investors to fund up to 90% of the budget. The film was released in November 2012.

That’s the allure of crowdfunding. The crowd is willing to invest in high-stakes early-stage companies that can soar in value and become blockbuster hits worth tens, even thousands of times your investment. In this new frontier of raising capital, crowdfunding investments by amateur investors bring a vast new pool of capital that can turbocharge entrepreneurs’ dreams, creating the possibility of incredible wealth.

With the growth of the Internet and technology, the world of raising capital and building businesses has changed. Information, speed, and globalization have opened up new competition and new sources of capital, such as crowdfunding. Many of the books and articles on raising capital and building businesses are out of date in this new era of inbound marketing, social media, and mobile marketing and advertising.

Every company goes through different stages. Every company goes through these distinct phases: Idea, Design, Discovery, Development, Pre-launch, Launch, and Postlaunch. Within each of these stages are considerations about how best to make a company grow.

Those principles can help you understand early-stage companies, whether you are a crowdfunding investor or an entrepreneur. You will also learn valuable techniques for finding and analyzing deals in minutes using a formula called the Three Magical Ps. These are:

People. Who are the people involved in the transaction, including the customers?

Product. What’s the product and how is it different?

Potential. What’s its potential, including its profitability and its competitive advantage to sustain its growth and profitability?

An early-stage company presents many more mysteries to an investor, but once you know what to look for, you can see signs of the beginnings of a sound business and business model. I will show you how to assess and define more clearly your investment philosophy, strategies, and goals so you can increase your income. Then you’ll learn how to invest in early-stage companies and increase the odds that you will pick a winner. For entrepreneurs, I will show you how you must pitch your business concept to get the money from investors, including those crowds out there willing to fund you.

Crowdfunding is an exciting new world for millions of people who live on Main Street. It holds great promise of riches, and at the same time it holds the hidden peril of losing your shirt. Let’s start with the general principles of investing: What do you look for? You can learn how the game is played. You can arm yourself with knowledge. And when you get done with this book, you will be able to stand out from the crowd.

Please note that at the end of each chapter, I will summarize key chapter points or takeaways and add additional strategies, insights, tactics, and steps to make the material immediately actionable.

CROWDFUNDING HISTORY AND EVOLUTION

Understanding the history of crowdfunding will help illuminate where it is today, so let’s learn a little bit about its origin.

While we may think that crowdfunding is relatively new, its history dates back to the early 1700s in Ireland where Jonathan Swift created the first loan fund that provided small loans to low-income families.

By the 1800s, more than 20% of all households throughout Ireland were utilizing microfinance.

Jonathan Swift is known as “the father of microcredit.” The concept of raising money from the crowd or collective fundraising has now evolved into a big industry called crowdfunding or alternative finance.

It took a couple more hundred years before crowdfunding gained traction in the United States. The moment came when a musician named Brian Camelio launched the website called ArtistShare in 2003 where musicians sought donations from their fans to produce digital recordings. Their first crowdfunding project was Maria Scheider’s jazz album Concert in a Garden, which raised about $130,000 and won a 2005 Grammy Award for Best Large Jazz Ensemble Album. Not a bad accolade for the first rewards-based campaign.

Thanks to the wild success of ArtistShare, more rewards-based platforms were launched, including Indiegogo in 2008 and Kickstarter in 2009, which both allow people to raise funds for an idea, a charity, or a startup business.

Both sites run on a rewards-based system where donors, investors, or customers help fund a project or product by donation and they receive a gift (rather than receiving an equity stake in the company which is called equity crowdfunding).

The business model for both Indiegogo and Kickstarter is one where the sites charge a fee of 5% of the funds collected.

To date, Kickstarter has raised over $2.3 billion for 104,043 of funded projects.

Indiegogo raised more than $800 million for over 175,000 campaigns in 2015 alone.

The big difference between these platforms is that Kickstarter is an “all-or-nothing” funding model where projects that are not fully funded walk away with nothing.

To date about 74% of campaigns on Kickstarter do not reach their goal.

Indiegogo offers a “keep-it-all” crowdfunding model which is more flexible for entrepreneurs. What this means is that you get to keep all the money you raise on Indiegogo even if you do not meet your campaign funding goals, so this can be an advantage over the Kickstarter model.

This begs the question: Why go with Kickstarter if only 36% of the campaigns on their site are successful?

The answer? Kickstarter is the 800-pound gorilla in the rewards space and has a much larger community of backers to tap into.

The “all-or-nothing” model makes failure more dramatic and most people will do more to avoid loss or failure. It creates a sense of urgency for backers to pledge that does not exist with Indiegogo.

Ultimately, it’s up to you to decide which platform is better for you, and you should choose based on your business goals and preferred working style.

Rewards-based crowdfunding had a head start on equity crowdfunding, until President Obama signed the Crowdfund Act into law in April 2012 which enables individual investors to back companies in exchange for equity ownership.

Now, there are several leading equity crowdfunding platforms like AngelList (2010), Crowdfunder (2011), and SeedInvest (2011) which provide investors access to seed and early stage investment opportunities.

PLANNING AND RUNNING A SUCCESSFUL CAMPAIGN

The two most critical components of a successful equity crowdfunding campaign are:

1: The story, and

2: The marketing plan

The startup’s story must be told in a way that elicits a strong emotional response from retail investors. This means that both the video and campaign page must clearly communicate the issuer’s or entrepreneur’s vision, mission, and values. Specifically, the issuer’s vision must transcend the entrepreneur’s product or service, and needs to inspire prospective retail investors to take action.

The other prerequisite in the pre-planning stage is the development of a comprehensive digital marketing plan.

What many fail to realize is that equity crowdfunding is really an exercise in digital marketing.

In an ideal scenario, you’re marketing your offering directly to customers and fans and converting them into investors in the process.

If you don’t have customers or fans, you’re most likely premature in your desire to pursue equity crowdfunding and should instead focus on building an audience first.

We recommend a 60-90-day ramp up before launching an equity crowdfunding campaign, and would advise that the issuer/entrepreneur assign a dedicated team for the duration of the project.

During the pre-planning stage of the campaign, you need to develop key assets including the crowdfunding video, campaign page, digital marketing plan, paid media plan, press release, and a press kit, at a minimum.

What does your crowdfunding marketing checklist look like?

Successful equity crowdfunding campaigns require a thoughtful, multi-channel marketing plan in order to drive the tens (or hundreds) of thousands of page views required to raise millions of dollars.

A strong marketing plan should incorporate strategies for paid, earned, owned, and social media.

At a tactical level, this includes PR and blog outreach, advocate (customer) marketing, innovating digital marketing (Reddit AMA, Product Hunt, Hacker News), social media marketing (Facebook, Twitter, Instagram, Pinterest), influencer marketing (YouTube, Instagram, Vine, Snapchat), email marketing, events marketing, and Facebook advertising against a lookalike audience.

The vast majority of campaigns require a substantial paid media budget to drive enough traffic to be successful.

In a highly-produced campaign, an issuer might expect a conversion rate of 0.25 – 1% of investors to page views.

Using the 0.25% conversion example, a campaign would require 400 page views to generate 1 investor.

Assuming an average investment of $2,000, a campaign with a 0.25% conversion rate would require 400,000 page views to raise $2 million.

Issuers with a strong built-in audience (i.e., customers and fans) should target a 1% conversion rate.

Case in Point: Elio Crowdfunding Campaign

Elio was the first company in the United States to close a Reg A+ campaign and list on a public exchange, and we are thankful to have been along for the ride (no pun intended).

The effort behind the scenes was no small undertaking.

The campaign involved five months of test the waters marketing and two months of live offering marketing. More than 650,000 people viewed the campaign page over the duration of the campaign, and Elio converted those page views to investors at about 1%.

Why was the Elio Motors campaign so successful?

Prior to pursuing its campaign, Elio spent years building out a customer base and online audience, and had a cult following of loyal supporters on social media.

Specifically, Elio had taken deposits from 40,000 people for its 3-wheeled, 2-seat auto cycle and had amassed a Facebook following of 250,000 fans at the time, and thus was in an enviable position going into Reg A+.

With a captive audience in place, we wanted to tell a story that effectively conveyed Elio's vision, mission, and values.

As Simon Sinek famously said in his TED Talk: “People don't buy what you do, they buy why you do it.”

The real opportunity was to craft a message that was bigger than the product. Thus, it went for a theme of “Alter the Course”.

 About 65% of the $17 million raised came from Elio’s 40,000 vehicle reservation holders; the balance came from new constituents.

 The Elio Motors campaign communicated themes of ownership, empowerment, and participation. These are winning themes in the realm of equity crowdfunding, and we succeeded in driving hundreds of thousands of visitors to the campaign page where Elio’s customers and other target audiences were inspired to invest.

Most important elements of running a successful crowdfunding campaign

Crowdfunding is about two things and two things only: Momentum and perception.

The strategy for any successful crowdfunding campaign is simple: Launch big or go home.

You need to launch with enough momentum to create the perception that your campaign is off to the races and on its way towards success. If you fail to launch big, you may never be able to recover.

Secondly, successful equity crowdfunding campaigns require marketing budgets. Assume $50,000 in marketing spend for every $1 million you want to raise.

Why do some crowdfunding campaigns fail?

Campaigns fail for different reasons. The most common reasons campaigns fail is due to issuers setting unrealistic minimum threshold raises in their Form 1-A filings with the SEC (akin to setting the target too high in a rewards-based scenario).

The other major reasons campaigns fail is when issuers underestimate the cost, effort, or sophistication required to create mass awareness for their campaign. Don’t be fooled: Crowdfunding campaigns do not market themselves.

Another reason campaigns fail is if when issuers launch campaigns for a business that has a weak product, service, or business model. You can’t polish a turd, and crowdfunding is no different. In reality, most businesses are not worthy of funding. Only the strong – who build businesses with fundamentally sound products or services – can survive.

5 most important things prospective CEOs must follow for a successful campaign

1. Spend time building your customer base and online audience first. The best-performing campaigns will be from issuers marketing their offering to existing customers and fans, period.

2. Plan your marketing campaign in parallel with your Form 1-A filing; this allows for a shorter gap between test the waters and live offering phases, which will increase your conversion rate of reservations to investors.

3. Assume $50,000 in marketing spend for every $1 million you want to raise. You didn’t think raising $20 million was going to be cheap and easy, did you?

4. Realize that equity crowdfunding is just as difficult as any other type of fundraising (angel, VC, private equity, etc.), and that is it not a shortcut. It just happens to be more compelling than the alternatives in that issuers can set their own terms in the raise.

5. Assign a dedicated team to your campaign. It takes a village.

Last but not the least, don’t let your ego get in the way of reality.

If raising $20 million was easy, you probably would have done it already, right?

Don’t assume equity crowdfunding is an easy solution to reach your $20 million goal. It isn’t.

Tips for closing investors once they have expressed interest in your deal or campaign

If you launch a test the waters campaign prior to a live offering, your reservation holders are going to be your primary source of investors.

The key is to have a well-planned drip marketing campaign ready to go once you transition into a live offering. As reservations holders convert to investors, they should be removed from the drip marketing campaign promoting the investment opportunity, and moved onto a separate “investor communications” drip campaign list.

Issuers can also leverage the concepts of scarcity and urgency to close investors once they have expressed interest in a campaign. Use scarcity by letting the crowd know that only reservation holders will be eligible to invest in your offering, thereby increasing the conversion rate of page views to reservations. Subsequently, when you announce a campaign end date, reservation holders are incentivized to take action quickly or risk missing out.

WHAT TYPE OF CAMPAIGN IS RIGHT FOR YOUR BUSINESS?

I often hear the question, “Should I launch a rewards based or equity crowdfunding campaign?”

Entrepreneurs need to understand that the underlying economics of both models are very different when it comes to crowdfunding.

Let’s break this down into a few key questions:

What type of business venture are you launching?

If you are launching a creative project like a film, book, game, or web series, you should seriously look at creating a rewards-based campaign where you create compelling perks in order to receive financial backing for your project.

Many creative movie and game projects like Super Troopers 2, Con Man, Shenmue 3, Exploding Kittens thrive on sites like Indiegogo and Kickstarter.

Moreover, it’s easier to raise money for a property that already has a strong built-in audience or following and you can drive people to a campaign.

If you have a technology company this can be a bit more complicated to determine because you can do either a rewards based like the Pebble smartwatch which raised over $20 million on Kickstarter without having to give up any ownership in the company, or launch an equity based campaign like Bitvore which raised $4.5 million on Fundable and Crowdfunder.

Typically speaking though, it’s harder to raise more than $50,000 on a rewards-based platform as the average raise is just under $10,000.

Through equity crowdfunding entrepreneurs have the ability to raise from $1 million to $50 million so technology and other capital intensive companies should seriously consider doing an equity based raise.

Companies looking for growth capital to expand or restructure operations or to enter new markets should look to equity based crowdfunding in order to secure larger capital raises.

On the other hand, if you have a real estate deal that you want to crowdfund, you should turn to real-estate specific platforms like Realty Mogul (which raised money for the Hard Rock Hotel Palm Springs), or iFunding where investors can start with just $5,000.

There are many other platforms like Fundrise, Patch of Land, and RealtyShares that just focus on real estate deals.

How much money do I need to raise?

One important fact to determine prior to launching a crowdfunding campaign is to figure out how much money you need to raise.

Typically speaking, with rewards based campaigns, it’s harder to raise more than $50,000.

Most successfully funded projects on Kickstarter raise less than $10,000, but a growing number have reached six, seven, or even eight figures.

If you know that you your business will need to raise $1 million or more, it’s best to seriously consider the equity crowdfunding route where you can now raise up to $50 million via Tier 2 of Title IV or Regulation A+ crowdfunding.

In addition, you must remember that there is a broad spectrum of legal fees, which depend on the complexity of the transaction, amount of regulation, and the use of technology

How important is market research?

Many smart entrepreneurs have embraced rewards-based crowdfunding to prove that there is a market for their product by launching a campaign and showing strong pre-sales interest for their product from their fans/customers.

Rewards based crowdfunding is an excellent source of capital, but it’s also becoming a market-testing and validation platform. It can provide useful data that can later be used to raise a venture round or do a larger equity crowdfunding round to grow your business.

In fact, the founder of Indiegogo Danae Ringelmann proudly states: "We allow entrepreneurs to prove themselves in a merit-based way by discovering whether a venture can in fact attract interest and money from potential customers.”

The site even allows campaigns to swap in new perks or change the required giving levels.

"You can test your pricing. You can test your features," Ringelmann said.

Testing your product is more difficult with equity based crowdfunding because it is not based on a pre-sales model.

What about combining a hybrid model of using both rewards and equity?

A growing number of entrepreneurs create visibility for their product first by launching a rewards based campaign, followed by an equity based crowdfunding to raise additional capital.

In this way, startup companies are going from market validation via a pre-sales model to seed funding via equity crowdfunding.

This is exactly the strategy that entrepreneur Peter Li, the CEO of Atlas Wearables, deployed by first launching a rewards based campaign on Indiegogo which allowed backers to pre-order his fitness tracker device.

His original goal was to raise $125,000 for his campaign but he raised over $600,000 in 2014. Peter next turned to equity crowdfunding on Crowdfunder and SeedInvest to raise over $1 million dollars to expand his team and deliver the product.

Another company that followed this hybrid model is PonoMusic, the company led by music legend Neil Young, which raised over $6.2 million on Kickstarter to fund his music player and then turned to Crowdfunder to raise an additional $6 million via equity crowdfunding.

PonoMusic proved via Kickstarter that there was strong consumer demand for the music player and then allowed accredited investors to invest as little as $5,000 to purchase equity shares on Crowdfunder.

The benefit to investors on the equity side is that they have the financial upside for a possible return on investment if PonoMusic is acquired or IPOs (goes public). Meaning, investors get a return on their investment when there is a liquidity event like when the company sells or is able to sell shares of stock in a public market like NASDAQ.

HOW DO YOU FIND THE NEXT BIG THING?

Danger. Danger. Danger…Everywhere…By investing along with the crowd, the chances that you will lose all your money are greater than 50%. For most investors and entrepreneurs, that number can climb to over 90%. That’s because most investors lose money.

Why? Because most of us have no real idea why we are investing or where to invest or how to invest.

What we do know is that we follow the crowd and we are terribly afraid to lose our money. Without an idea of how to make money, we chase after the next great thing, which usually turns out to be a dud.

The dream of being a crowd fund investor should have you running for the exits. If you can’t make money investing in the stock market or bonds, what chances do you have making money in high-risk early-stage companies that are no more than an idea or just a start-up?

But wait. Surprise. You may have an opportunity to find the next big thing. Take a company called SendGrid. Founded in 2009, SendGrid was started to serve companies that send email messages that require either a confirmation or response. SendGrid helps prevent these emails from getting caught in spam filters and provides data about whether the email was read. It was originally funded by a company named TechStars, which calls itself “the #1 startup accelerator in the world.” Today SendGrid is used by 40,000 publishers, has sent more than 2.6 billion monthly emails in 150 countries, and it has grown to 70 employees.

Imagine you were an original investor in this company. The chances you would have made a killing in SendGrid are very high. If you missed SendGrid or never heard of it, you can join the crowd.

In the newly proposed JOBS Act, the crowdfunding equity section allows you to invest in SendGrid just like a venture capitalist or angel investor. You can make the huge returns most only dream of. The returns which were virtually available to only the wealthy. That’s because, beyond the crowd in crowdfunding, they are the insiders. This is the network of venture capitalists and wealthy investors who get to review the best deals, share their expertise, and invest together.

How does a SendGrid or Pinterest or any other deals like them come up? Do they have any common characteristics that give you a greater chance for picking the winners? How do the best early-stage investors pick more winners than losers and become the wealthiest individuals in the world?

Being presented with an idea for an investment can often mean nothing if you do not have an investment approach that makes sense.

Being able to invest is unlike other skill sets. You can see someone play a violin at Lincoln Center or throw a football for a touchdown to win the Super Bowl. You know you will never be good enough to do that. But in the world of investment, you don’t need to have fine motor skills or eye-hand coordination. Instead, you can do the research, go to physical locations, ask questions, and observe.

Even more important, you need a why or a purpose. What do you want to achieve with your money?

The answer(s) to this question are what make crowdfunding such a game-changing approach for investors and entrepreneurs, creative types (such as artists, writers, game developers, film makers), and small businesspeople.

Using the Internet, you as the investor can choose via crowdfunding to

Strictly donate your money;

Donate it for some reward;

Donate it for an advance purchase of a product;

Or, soon, buy part ownership in the company to which you give money (called equity-based crowdfunding, still being defined by the Securities and Exchange Commission, or SEC).

Each option can be for many reasons beyond money making. Your emotions may be stirred to back some good cause or get a cool game or give another fellow human being a shot a fulfilling their dream.

But if your choice involves money, you don’t want to take risks. Who wants to give to a charity and find out they have been duped?

You are not alone if you have doubts regarding money and wealth building. Doubts and fears raise many questions, such as the following: Do you think you are too young to succeed? Larry Page and Sergey Brin were in their twenties when they started Google. Steve Chen and Chad Hurly were paid $1.65 billion by Google for YouTube — an 11-month-old company that allowed users to share videos. Mark Zuckerberg was 23 when he refused a billion-dollar offer from Yahoo for Facebook. Should you feel bad for the MySpace guys who sold out to Rupert Murdoch on the cheap for $580 million?

Maybe you think you need a great education to make money. Maybe you are thinking that you are not smart enough to be wealthy. Bill Gates dropped out of Harvard to focus on building Microsoft. Steve Jobs dropped out of Reed College after six months. A recent New York Times article reported on Eden Full, who dropped out of Princeton because a billionaire, Peter Thiel, provides $50,000 per year for two years for people under 20 who want to discover the next big thing.

Being a top investor or entrepreneur is not based upon age or education or talent or money or a number of other factors often cited by “experts.”

What holds back many people is typically more personal. New studies show that people are predictably irrational. They will repeat the same mistakes that are counter to sound investing and business building over and over again. If they see others—the crowd—making money in social media, then they rush in. If they see oil prices exploding, they buy at the top of the market—before the price inevitably stabilizes at a lower value. Understanding your investing irrationality—your money-making blindness—will free you to see what the top investors and entrepreneurs see.

There is no strict formula or template that you plug in certain numbers and assumptions, and out come automatic profits.

You should realize that it is not only amateurs that get caught short. So do the pros—the venture capitalists. In 2000, venture capitalists in Silicon Valley could not plug enough money into the next dot.com company. Yet many of these new ideas proved to be a flash in the pan. Founded in 1997, online grocer Webvan was a huge dotcom flop. In 18 months, it raised $375 million in an initial public offering (IPO), expanded to eight U.S. cities, and built a gigantic infrastructure, including a group of high-tech warehouses. Yet they discovered that most customers didn’t understand the idea of a web based grocery store. In 2001, it filed for bankruptcy and laid off 2,000 workers.

That idea doesn’t seem too hard to grasp, does it? People are used to shopping in grocery stores, so if you think they’ll go to the web instead, guess what? That big idea lacked one essential ingredient: common sense.

Shikar Ghosh, a senior lecturer at Harvard Business School, told HBS’s Working Knowledge why outside funding has the potential to turn a little failure into an enormous one. “The predominant cause of big failures versus small failures is too much funding. What funding does is cover up all the problems that a company has.” He went on, “This lets management rationalize away the proverbial problem of the dogs not eating the dog food. When you don’t have money, you reformulate the dog food so that the dogs will eat it. When you have a lot of money, you can afford to argue that the dogs should like the dog food because it is nutritious.”

If you want to invest in start-ups or build them, then you can see that having enough money at the start is rarely the issue.

Crowdfunding can get many businesses off the ground.

The question becomes how to select the ones that have the best chance of success. These are the insights investors and entrepreneurs crave. They are the ones that will make you money.

So let’s find out what only the top 1% know.

In Summary

You cannot avoid uncertainty and risk when you make investments. Think of currency risks and inflation.

High risk does not mean you get high rewards. It means you can lose all your capital.

Following the crowd can often lead to losses. You need to weigh when crowd opinions matter, such as a restaurant or product review. Ask how the crowd’s opinion and feedback will impact your investment.

A huge potential opportunity occurred on July 10, 2013, called Title II under the Jobs Act. The SEC voted to allow general solicitation of private placements to accredited investors. The total market is estimated to be over one trillion dollars and dwarfs the proposed Title III crowdfunding equity.

Being an investor does not require the physical skills of peak performance.

What is common to all peak performers—investors, entrepreneurs, athletes, artists—is their ability to harness their beliefs and emotions to excel.

Being a top entrepreneur or investor is not based upon your age or education.

THE VALUE OF PATTERNS

Is wealth accumulation a matter of destiny? Will most of us just be wishful thinkers and also-rans in the game of money? More and more, a small group of experts believe that you can predict with a higher probability which companies will succeed. There is a science to wealth building. These experts describe the common traits that winning companies and their leaders and other stakeholders (employees, investors, suppliers, distributors and customers) have that the less successful or the outright losers don’t.

Even so, many explanations of wealth building only describe symptoms, not the underlying causes. You can learn some of the important elements, but the roadmap to wealth is often still fuzzy and elusive. What you really want to know is the complete road map to wealth—from the original concept to the cash in hand. You want to know if there is a step-by-step approach, with checklists and ways to measure your progress.