There are many benefits to democratization of investments through equity crowdfunding. In other articles, we’ve stressed the importance of transparency, and how it supports the equity crowdfunding ecosystem. In this article, however, we’ll talk about deal flow, and how it benefits investors and equity crowdfunding portals particularly.
In finance and in equity crowdfunding, deal flow is the rate at which qualified deals are presented to investors. A higher deal flow means greater opportunity and more alternatives for the investors, which generally translates into investment. The greater the number of deals surfacing at any given point in time, the greater the odds that investors will make the leap and invest. Conversely, a lack of good quality deal flow means that potential investors are less likely to invest. Investors want options. Quite simply, not all investors have the same preferences or risk tolerances. This is why deal flow is crucial to the success of an equity crowdfunding portal.
Deal Flow and Transparency are Related
Due to the transparent nature of the process itself, investors and entrepreneurs both get to scrutinize the equity crowdfunding portals’ functions, its quality of performance, and its domain of work. Investors rely on the equity crowdfunding portal to perform proper due diligence, and will need to develop faith in their expertise with respect to the offers they present. Transparency and deal flow are ways to build trust with investors. If the equity crowdfunding portal is extremely efficient, has high quality standards, and covers a range of business opportunities within the operator's field of expertise, then the word quickly spreads about the portal.
This is a beautiful phenomenon, because not only does the portal exert selection pressures on investors and companies by conducting their due diligence, but the investors and entrepreneurs also exert selection pressures on the equity crowdfunding portal by choosing the portal which will perform the best in advancing their interests. With the goal of finding better investors in mind, entrepreneurs are going to use the portal with greater number of high quality investors. Similarly, with the goal of finding the next big thing, investors are going to use a portal which will be reputable and appealing enough to attract companies looking to raise capital.
Good deal flow comes from a strong reputation for thorough due diligence and high standards. With success and transparency equity crowdfunding portals will build up their deal flow. Higher deal flow gives investors more options, as they can select from a number of business opportunities, and then carefully weigh pros and cons of each before signing a deal with a company that suits their field of expertise, interests, and future portfolio goals.
Sometimes, however, deal flow needs to be generated from scratch, as is the case for any start up equity crowdfunding portals. For these portals to be visible, so that their service can be at least considered for making an equity crowdfunding deal, it’s important that the equity crowdfunding portal has stringent quality standards so that customer satisfaction can speak for the portal itself. In addition to high standards, the portals must have significant experience in the industry in which the portal is focused and be transparent about such expertise in order to create the required confidence for investors. Once investors start investing and providing confidence in the equity portals team, deal flow will follow.
While deal flow alone will not bring investors or dictate the success of a crowdfunding portal, it’s an important factor that when combined with transparency and good due diligence will improve the chances of success.
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