Venture Capital Investing through OurCrowd: A Review by Brokerage Review
We are business development contractors to OurCrowd.
What is OurCrowd?
When most people think of crowdfunding, sites such as KickStarter and Indiegogo come to mind. But there is a whole other world of crowdfunding that is equity-based, giving investors the opportunity to put money in new startup companies hoping to hit it big with an IPO or acquisition. OurCrowd (www.ourcrowd.com) is one such company giving investors the opportunity to enter the ever-appealing high-tech startup scene.
The OurCrowd Process
OurCrowd thinks of itself as combining the services and management of a venture capital firm with the investment flexibility and choice of angel investing. OurCrowd is presented with hundreds of startup companies each month and through its own due diligence narrows down the investment candidates to only a select few. Only the best companies are chosen and then presented to investors who have the option to invest in the company of their choosing in any amount upwards of $10,000.
At the same time OurCrowd invests some of its own money in each company as well. This is an important point to note as there are not many other equity-crowdfunding sites where the platform itself is willing to invest its own money alongside the individual investor. This gives the site much more incentive to weed out companies it does not feel have the potential to be good long-term investments.
For those looking to diversify to the maximum and invest in as many OurCrowd deals as possible, an option called Portfolio Reserve is offered. This investing option puts investing on autopilot and automatically allocates a portion of a set portfolio amount to each individual investment, meaning the investor will never miss out on a deal. This option is not for everyone as the minimum portfolio allocation for the Portfolio Reserve is $100,000.
The Israel Advantage
Known as the “Startup Nation”, Israel has a booming high-tech industry filled with entrepreneurs wanting to make a name for themselves through new companies. Every industry from cyber-security to clean water to medical devices is represented. Based out of Israel, OurCrowd gives investors the ability to take advantage of the countries entrepreneurial drive which has seen massively successful exits. CEO and founder John Medved is known as a leading Israeli venture capitalist and serial entrepreneur who has made over 100 investments in Israeli startups and was previously the CEO of Vringo, which he took public on the New York Stock Exchange.
Risk, Risk, and more Risk
It is commonly known that most startup companies fail, but most investors are unaware to what degree. No statistic is universally agreed upon, but the estimates put the startup failure rate at somewhere near 80%. This means that an investor would need to on average invest in five companies before getting to one successful exit in the form of an IPO or acquisition.
Startup companies almost always overvalue themselves and pump up their projections to make it more appealing to potential investors, and the reality of each company’s ability almost always falls short of their projections.
An additional risk is the illiquidity and non-voting rights of these assets. At this time there is no secondary market to trade these forms of equity, meaning, investors are unable to dump their stake in the company and are locked in to their investment. Coupled with the fact that these types of equity do not include voting rights for the individual investor, leads this to be a buy and hold investment with no additional research or work that can be done by the investor.
Reward, Reward, and more Reward
As much risk as startup investing presents, the potential returns present an allure that cannot be found anywhere else. Because most companies fail, those investing in the early stages of a startup are often looking for a 10x return on investment. In the past several years Israel has shown the capacity to develop companies that produce historically large returns through IPOs as well as acquisitions by major companies like Google and IBM. This makes the potential in the Israeli startup market very lucrative.
Who Can Invest?
Equity crowdfunding is brand new investing area which has cause legal gray areas and uncertainty for investors. Additionally, the risk associated with these investments has caused regulators to restrict the opportunity for investment to only the very wealthy. Currently, the equity crowdfunding marketplace is only open to investors that are considered accredited, which in the United States means having an income of over $200,000 per year, or, over $1 million in net assets excluding the primary residence of an investor. This severely limits who can invest in these early stage companies. However, it is expected that regulation will loosen in the future to give other investors the opportunity to roll the dice on startups of their choosing.
Investment Minimum
The minimum investment in each individual portfolio company is $10,000. While this might seem like a substantial sum of money, it is actually a much smaller minimum than is required to invest in most venture capital funds.
Platform Features
Due to the secrecy of startup companies, not much information in these investments is readily available. Since OurCrowd does its own due diligence, they provide investors with all of the information they are able to obtain, which helps its users make informed decisions about investing.
Information often includes industry trends and potential, business model analysis, revenue to date, and risks moving forward. An additional compilation of information, known on the platform as “OurTake”, provides the most important details in one document, along with OurCrowd’s analysis of the company in question.
The OurCrowd blog is also an important resource where investors can read posts all about startup investing to learn more about the process and how it works along with news and analysis of the growing Israeli startup marketplace. This blog is constantly updated with the newest research and information regarding Israeli startup investing and even includes podcasts and slideshows of applicable presentations.
OurCrowd Pros
There are not many platforms in which investors can not only invest in startup companies, but decide for themselves what companies are of interest to them. Having their own skin in the game, OurCrowd’s team of investing experts vet for companies with the most potential and possibility of large returns. The OurCrowd Israel advantage also presents a new twist which makes it a great way to diversify a portfolio.
OurCrowd Cons
Restrictions on equity-crowdfunding investing mean that only the wealthiest investors will be able to get in on these investments. That may be for the best, as there is immense amounts of risk with these investments and those who aren’t prepared to lose $10,000 on a single company should not even play around with the idea.
OurCrowd Review: Final Verdict
The potential returns on a startup investment are enticing enough that most investors overlook the enormous risk. OurCrowd provides a great platform to invest in early-stage companies with enormous potential and diversify their portfolio of holdings at the same time.
Source: https://www.brokerage-review.com/article/account/ourcrowd-review.aspx
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