Is crowdfunding a safe haven when markets suffer selloff?

The latest crash on the global stock markets and the projections that the sell-off may continue for some more time are giving a wider scope for crowdfunding activity. The ongoing selloff across the global markets is likely to turn into a prolonged bear phase so this will encourage investors to switch over to crowdfunding, according to some market analysts

In the present crisis times, crowdfunding is a potential platform to offer better returns on investments (RoI), when compared to equity, currency, commodities markets, etc.

Crowdfunding involves raising money to commercialize a potential business idea or commence operations of a startup. It is raising money from peers and potential investors without hurdles of bureaucracy, favoritism, and nepotism.

In other words, we can say for the people, by the people and of the people as it doesn't involve any government-regulated mechanism. Crowdfunding is also free from the impact of whatever happens in the stock markets.

However, crowdfunding investors need to meet certain quality parameters to become accredited investors in this segment including equity crowdfunding.

It's estimated that there are 8.5million accredited investors in the US alone and most of their money will get into startup and quality companies in the wake of uncertainty in the global stock markets.

Some business research firms forecast the bear phase triggered by the ongoing market crash is likely to continue for three years. Market analysts opine that this crash is very much needed correction for the global markets. If this turns out to be true, then where will the investments go? Crowdfunding becomes a favorite platform for potential investors.

Entrepreneurs who want to raise money from sites such as Kickstarter or Indiegogo may not get response as good as it used to be before the stock market crash. Business confidence usually drops several times during the market crash than positively reacting to an equal amount of upward movement.

Some analysts opine that the continuous fall in stock markets will erode the liquidity and this will also impact crowdfunding as it results in reduction in investment as well.

However, crowdfunding will be easily available only to those with huge potential for growth among startups. So it's not easy for every startup can access equity crowdfunding money. It's estimated that the number of 8.5 million accredited investors in the US who prefer to park their money in startups is not even five percent of them. However, the present market conditions favor crowdfunding. Consumer products startups are witnessing funds inflow.

The present adverse conditions in the markets will make crowdfunding a safe bet as it's likely to offer more returns than an investment in the stock markets, which are poised for a prolonged bear phase.