For many investors, the idea of investing in a start-up that could become the next Amazon, Google, or Facebook is exciting. However, it can be challenging to find ground-floor opportunities. This is where Wunderfund come in.
Wunderfund makes it simple to invest in a start-up during the early stages. Through the platform, the general public can get involved with companies in a wide range of industries. Their participation helps the business raise capital. And, in return, they get to own a piece of the action.
Here’s a look at what Wunderfund is and how investing through the platform works.
How the Wunderfund Platform Works
Wunderfund uses a crowdfunding approach to connect investors with start ups that need to raise capital. The platform isn’t unlike other crowdfunding solutions. The companies tell their story, share images, and set a financial goal. Then, interested investors can contribute and gain rights to future shares in the business.
Before a campaign goes active, Wunderfund vets the companies to make sure they meet the platform’s requirements. This includes a review of the company’s business plan, articles of organization, financials, and various other documents. Background and credit checks are also conducted on the start up’s founders and sponsors.
Once approved, anyone can become an investor. Even if they aren’t accredited. However, each individual is limited based on their financial profile. Meaning, you can’t invest more than Wunderfund sets as your limit.
Usually, the default minimum investment in a company is set at $50. However, the start-up can make the minimum higher or lower. As a result, small investors can get involved with these companies early in many cases.
The Companies on Wunderfund
Wunderfund lists start-ups from a wide range of industries. This can include mobile payment solution developers, breweries, cryptocurrency developers, beauty product creators, and service providers.
The selection of companies can change rapidly. However, there aren’t always a lot to choose from at any given point in time. Wunderfund launched in October of 2017. Which means the platform is less than two years old. If the Wunderfund platform grows in popularity, then more offerings may come available. But it is important to realize that there may only be a handful of start-ups on the list until Wunderfund’s popularity grows.
How Companies are Valued
Start-ups largely determine their value according to interest from professional investors who may choose to invest. The valuations can fluctuate over time. Particularly as the company grows or matures.
More often than not, early-stage start-ups are worth less than those further along. However, this can change if issues arise that impact the valuation.
Creating an account on Wunderfund is completely free. You don’t pay anything until you decide to make an investment.
If you want to invest in a start-up through Wunderfund, you do have to pay a fee. There is a one-time charge of 2 percent of the amount you invest, which is used to access and process the investment.
Otherwise, all other Wunderfund fees are paid by the start-ups. Once the company reaches its financial target goal, they pay a 7 to 9 percent sliding fee, the exact amount of which is determined by the amount raised. Additionally, the start-up also has to pay a $500 escrow fee, which is non-refundable.
Access to Investor Updates
Anyone can monitor a start-up’s campaign progress. The company may post updates as the campaign moves forward, giving everyone additional information, and you can also see the start-up’s progress toward its goal and the number of days remaining in the campaign.
The companies also have to file annual reports at the end of every fiscal year, barring a few exceptions. If the campaign is successful, investors will also receive post-campaign reports.
Successful vs. Failed Wunderfund Campaigns
Wunderfund uses an approach similar to Kickstarter. Start-ups have to set a target funding amount and end date for their campaigns. If they bring in enough to cover the financial goal within the allotted time, the campaign is considered a success. The company then receives the investments and can use the funds to support the business.
However, if the start-up doesn’t reach the target dollar amount by the deadline, the campaign fails. At that point, investors receive a full refund (minus any escrow transaction fees) of the amount they made as an investment. With the refund, which is automatic, the investor no longer has any stake or rights regarding the start-up.
The Risks of Investing in a Start-up
As with any investment, there is risk if you invest in a company through Wunderfund. This can include up to a total loss of your investment, as these are early-stage ventures that aren’t guaranteed to succeed.
Generally, these kinds of investments are speculative. These businesses aren’t mature, so there is little in the way of a track record. The products or services the company offers may never come to fruition, so you can lose the entire investment in the worst-case scenario.
Additionally, there is substantial illiquidity with investments through Wunderfund. Your ability to resell during the first year is incredibly limited, and that restriction may extend beyond the one-year mark. There is no market – like a stock exchange – for transitioning your investment to others, so you may have to find a potential buyer on your own in cases where you could potentially sell, which may be challenging.
The valuations on start-ups can also be especially tricky. There is a chance that you’ll overpay for your stake. Additionally, there may be superior equity classes that aren’t available through Wunderfund, which may alter the value of your stake.
Should You Invest Through Wunderfund?
If you want to invest in early start-ups, Wunderfund is worth exploring. The platform is easy to use, and you can peruse the available campaigns to find businesses that pique your interest.
The process of setting up an account and investing are both incredibly simple. Plus, the investor fee structure is fairly reasonable.
However, you do want to make sure that you are comfortable with the degree of risk involved. Investing in a start-up is riskier than many other investment options. It is possible you will lose your entire investment, so you need to keep that in mind before you commit any money to a campaign.
Have you considered using Wunderfund to invest in start-ups? Share your thoughts in the comments below.