For the last piece on crowdfunding we are going to look at the pros and cons of crowdfunding and most importantly the due diligence you need to pay before making your decision. These may apply to both the investor (limited partner) and the business owner (general partner).
Global food security concerns have necessitated more investments in the agricultural industry, to ensure that the challenge of the current growing population needs are met.
Although crowdfunding may offer a good investment opportunity for agricultural projects and agribusinesses, due diligence must be paid in making the choice to invest and which businesses to invest in.
As for agripreneurs, they must consider how much they should take up and commit to. Perhaps crowdfunding can be used as a complementary but not the main source of funding. Hence the capital structure must be considered carefully.
Additionally, legal requirements and regulations on financing must be fully understood and adhered to at all times. The intention is to scale up the business, thus the agreement between the investor and the business owner must be clearly stated, to ensure that there is a minimal deviation from the business plan and to ensure business sustainability and success and hence the returns to the investor as promised.
As we all know, agriculture has challenges and risks that most at times are beyond human control, therefore the business model and business strategies must be clearly stated and fully implemented. So, what are the common risks, pros, and cons of crowdfunding that we need to consider and understand?
The main risk of crowdfunding is the risk of business failure, however, there are more risks such as fraud, uncertain returns, low liquidity, and mediocre investments. There are no guarantees that the business will succeed, financing does not constitute business success, and there are various aspects of business that have an impact on its success or failure such as the implementation and execution of business strategies, management, governance, and many more.
Hence, we can’t rely solely on financing to determine or guarantee whether a business will succeed or not, which consequently has an influence on the return on investment (ROI). Additionally, technological advancement means an opportunity for fraudsters and scammers, especially when intending to raise funds or crowdfunding through online platforms.
Nevertheless, if carried out well, agricultural projects and businesses have great potential for higher returns, job creation, and contribution to the economy and to mitigate food security concerns.
Thus, before taking on an investment opportunity, investors must carry out due diligence and the agripreneurs must understand the consequences of such investments and be able to state their case clearly and ensure business success and sustainability.
Disclaimer: Crowdfunding is not to be confused with pyramid schemes.