Not all investors are looking to take a gamble on the next Silicon Valley novelty. While those investments can lead to huge success, they can also be incredibly risky. For those investors that would rather help proven businesses than roll the dice, there’s Bolstr.
Bolstr lies somewhere between a crowdfunding platform like Kickstarter and lending sites like LendingClub. It doesn’t include a lot of opportunities that would be exciting to experienced venture capitalists. But that’s not exactly the market that Bolstr is targeting.
Instead, the service is aimed directly at accredited investors who haven’t actually invested yet because they are intimidated by the risk involved. The company estimates that there are over 8 million such investors out there who might appreciate Bolstr’s low risk model.
The company, which makes money through listing and service fees, doesn’t just lower the risk by offering more modest investments in smaller companies. Bolstr also screens small businesses looking to use its service. The screening process includes not only analysis of traditional metrics such as liquidity ratios and credit scores. But it also includes evaluation of other indicators such as a company’s eBay and Yelp ratings. Examining these factors helps Bolstr determine which opportunities offer the lowest risk for potential new investors. And those are the only opportunities that make it to the site.
Though the company expects that defaults will eventually occur, there have been none to date. Most investments are relatively small — between $20,000 to $25,000. And investors get no equity in the companies.
The option could be a win for first time businesses and small business owners alike. Just as not all investors want to take the risks involved in finding “the next big thing,” not all small businesses want to give up equity in their company or go through the whole crowdfunding process. In a post for Inc.com, analyst Ross Rubin explains:
“For companies that pass its muster, it could be a way to tap into an emerging class of investors looking for higher returns than managed funds but who don’t have the experience or patience to place bets on the next Silicon Valley rocket ride.”