How returns work

When you invest through Crowdbase, your goal is to see your money grow. Returns on your investment can come in different forms and at different times, depending on the type of investment and the company's success. Here's how you might see returns from investing in private businesses.

Ways to Earn Returns

Initial Public Offering (IPO)

An Initial Public Offering (IPO) is when a private company becomes publicly traded by listing its shares on a stock exchange. This means anyone can buy and sell the company's shares on the open market.

How Do You Benefit?

• Increased Share Value: When a company goes public, its shares often increase in value.
• Liquidity: You can sell your shares more easily, turning your investment into cash.

Example

Imagine you invested €500 in a startup. Years later, the company goes public, and your shares are now worth €5,000. You can choose to sell some or all of your shares on the stock exchange.

Acquisition

An acquisition happens when another company buys the company you've invested in. This could be a larger firm looking to expand or gain new technology.

How Do You Benefit?

• Payout for Your Shares: You'll receive payment for your shares, often at a higher price than what you initially paid.
• Forms of Payment: The acquiring company may pay in cash, their own stock, or a combination of both.

Example

Suppose you own shares in a tech startup, and a bigger company buys it. If the acquisition price values your shares at €2,000, that's what you'll receive — either in cash, new shares, or both.

Secondary Share Sale

A secondary share sale is when you sell your shares to another investor before the company has an IPO or is acquired. However, selling shares in private companies can be challenging due to a lack of liquidity—meaning there aren't always buyers ready to purchase your shares.

How Do You Benefit?

• Potential for Early Return: You might be able to sell your shares if you find a willing buyer.
• Negotiated Price: You and the buyer agree on a price for the shares.

Crowdbase's Secondary Market

We're developing a Secondary Market to help investors buy and sell shares more easily. This platform aims to connect you with potential buyers, but it's important to note that liquidity may still be limited.

Example

If you need liquidity, you might offer your €500 investment for sale. Finding a buyer could be difficult, but if successful, you and the buyer would agree on a price, say €750, providing you with a return without waiting for the company to go public.

Dividends

Dividends are payments made by a company to its shareholders out of its profits. They are usually paid in cash.

How Do You Benefit?

• Regular Income: Receive periodic cash payments without selling your shares

Example

If you own shares in a company that declares a €2 per share annual dividend and you own 100 shares, you'll receive €200 each year.

Note: Not all companies, especially early-stage startups, pay dividends, as they often reinvest profits back into the business.

Share Buyback

In a share buyback, the company offers to purchase shares back from investors, usually at a premium price.

How Do You Benefit?

• Sell at a Higher Price: You can sell your shares back to the company for more than their current value.
• Increased Share Value: If you keep your shares, the reduced number of shares in circulation can increase the value of remaining shares.
  Example
  A company offers to buy back shares at €10 each when the current share price is €8. You can choose to sell your shares at this higher price or keep them and potentially benefit from a price increase due to fewer shares being available.

Understanding Risks and Timing

• Patience is Key: Returns on private investments often take time—sometimes several (5+) years.
• No Guarantees: While these methods can lead to returns, they depend on the company's success.
• Diversify Investments: Spreading your investments across different companies can help manage risk.

Note: All investments carry risks, and returns are not guaranteed. It's important to only invest money that you can afford to lose.