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Follow the crowd

Investing in small unlisted companies is highly risky, but a new breed of website - crowdfunding platforms - lets you invest small amounts you can afford to lose. But is the excitement of it enough to counteract the slim odds of making money?
Follow the crowd

Buying shares in tiny start-up companies and watching them grow makes investing in ordinary shares and funds feel tame. So if you're a stock market big-return hunter looking for a new pastime, then crowdfunding could be your new best friend. In just a few clicks of a mouse, crowdfunding sites transport you to a den filled with infant companies, all with the potential to become the next 'big thing'. And you're the dragon, sniffing out the next Angry Birds, Innocent Smoothies, or Lastminute.com - using your business acumen to hand-pick the gems from the rubble. This is about as tantalising as it gets.

Except it's not quite like that. The reality is that you're sat in front of a computer screen in your living room, about to hand over some cash to a bunch of complete strangers with no track record. Only about one in 10 of these businesses makes investors any profit whatsoever, and there are no official figures because angel and crowdfunding groups say they don't keep a record of their businesses' success. This lack of information is not an accident, and in itself proves a point. The odds are never in your favour, especially if you treat it as a bit of fun and don't do your homework on your investments.

It is possible to make money, though. Professional angel investors report making bumper returns - earning 30 times your initial investment is not uncommon - although even they admit that most of their investments go to pot. And they spend days and weeks on end, poking their noses into company accounts and interrogating the directors to sort the wheat from the chaff. They also spread their risk by having portfolios of at least 10 companies - rather than taking a punt on just one or two.

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