Don't Sweat the Small Stuff

Small Crowdfunding Investments Merit Thoughtful Consideration Not Analysis Paralysis

I’m not a financial advisor; nothing I write in Superpowers for Good should be considered investment advice. You should seek appropriate counsel before making investment decisions. As the CEO and primary shareholder of The Super Crowd, Inc., a public benefit corporation, my opinions about the offering reflect my bias. Only invest what you can afford to lose.

Over the recent weeks I’ve been running my own crowdfund offering via Crowdfund Main Street, I’ve frequently encountered hesitation from people apparently flummoxed by the idea of investing. Today, I’d like to address some of the concerns behind the flummox.

Attitude

One essential part of investing is a shift in attitude. Folks who may comfortably drop $100 on a round of golf with lunch and a beverage from the drink cart shift into “investment mode” when evaluating a $100 investment.

Others who give generously to support causes they care about donate hundreds of dollars to nonprofits who work to accomplish a social mission they support but freeze up when faced with the opportunity to invest in support of the same mission.

Part of what is happening is a shift in attitude. Spending or donating money that will be gone with 100 percent certainty is a familiar activity to all of us. We don’t agonize over the familiar activities where we part with money we’ll never see again, but we all have another mode for thinking about an investment.

If crowdfund investing is new to you, chances are good that you’ve experienced this feeling as you’ve considered investing in my new business, The Super Crowd, Inc. (TSCI), a public benefit corporation. Something about the unfamiliar nature of crowdfund investing may suggest it deserves more scrutiny than it does.

If you’re in a position to donate $100 to charity or spend $100 on a round of golf, you’re likely in a place you can afford to make a crowdfund investment without analysis paralysis.

Tax Implications

When making an investment, tax implications that can be difficult to understand may feel suddenly relevant. The reality is that most of the tax issues that can pop up are positive. A variety of tax benefits may apply to investing in small businesses that don’t apply to investments in General Motors.

Here’s the thing. If you invest a tiny portion of your net worth or income, it likely doesn’t matter. You could easily spend more time and money tracking down the tax benefits on a three-figure investment than the benefit is worth.

Some crowdfund investments may generate K-1 partnership returns. These complicate your tax return. If you don’t already pay a preparer or know how to handle K-1s, you’ll want to avoid investments like these. My business won’t generate a K-1. When we’re able to send you money, you’ll get a 1099 like you get from your bank. You can handle it.

(The investments that generate K-1s often provide extra tax benefits, so don’t shun them if you already have a portfolio of assets that generate K-1s.)

Bottom line: small investments have small tax implications.

Due Diligence

If you’ve ever talked to anyone about making alternative investments, you may have found yourself nodding wisely when they mentioned conducting “due diligence.” At the same time, you may have thought, “Right, whatever that means.”

Due diligence is simply a reference to doing your homework before investing. Before making a significant investment, getting serious about understanding the terms and risks makes sense.

If you’re planning to put 10 percent of your assets into a single investment, it would be wise to scrutinize every aspect of the deal. You might reasonably spend months on analysis and bring in experts to help you decide how to structure your investment.

On the other hand, if you’re planning to invest a tiny amount, you’ll quickly realize that subjecting a small investment to that sort of process makes no economic sense. Spending 100 hours on a $100 investment would be unimaginable.

It may be tempting, therefore, to shun the investment because you can’t reasonably do the level of due diligence on a tiny investment that you would on a large one.

Before allowing yourself to be overwhelmed by pre-investment homework, ask yourself these questions:

• Is the entrepreneur someone I’d like to support for personal or professional reasons?

• Is the social mission of the business one that I would like to advance?

• Would investing be fun for me?

If you answer yes to any of these questions, you may want to override your impulse to analyze the deal to death. You golf, ski, bike or maintain a gym membership even though the money is gone. You donate even though the money isn’t coming back. You can invest similar amounts of money in the same way.

Who knows, you may get the money back with a return while supporting a friend or colleague, advancing a social mission or having fun.

Please allow me to make this a bit more personal. Would you like to support me? Do you support my social mission? Would you enjoy having a small investment in TSCI that you could follow over the coming years? If so, please invest.

Beginners Begin

Making your first crowdfund investment can be scary. No doubt about it. Here’s the thing. You have to start somewhere.

If you are intrigued at all by crowdfund investing as a way to make money, support social causes, build community or help friends, pull the trigger. Put a small amount to work somewhere. I’d be thrilled to have you start with TSCI.

You will learn a lot from your first investment. Over time, you may make more investments. Each time, you’ll learn more. Your due diligence efforts will become more focused. You’ll be able to predict more confidently what opportunities make suitable investments (and which don’t).

Your appetite for risk and reward will adjust over time as you consider a range of investment opportunities.

Remember that all experts were once beginners. So, get started—not flummoxed.