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You are here: Home / General News / Crowd Ownership is Now OK. What Could Possibly Go Wrong?

Crowd Ownership is Now OK. What Could Possibly Go Wrong?

June 23, 2015 By Dan Rosenbaum

If you really really really like a crowdfunded project, it is at last possible not only to buy a pre-release product, but to actually buy into the company.

Under terms of the 2012 “Jumpstart Our Business Startups (JOBS) Act” that went into effect last week, you no longer have to have an annual income of $200,000 or net worth (not including homes) of $1 million to invest in a startup. Starting in the Depression, the federal government had put into place protections that allowed only “qualified investors” to take certain types of financial risks. That kept small investors, the argument goes, from getting an early piece of the next IBM, Microsoft, or Apple.

It also keeps small investors — the ones who are least sophisticated, least diversified, and least able to afford failures — from getting fleeced.

When Kleiner Perkins takes a position in a startup, it’s a very thoroughly considered decision, and part of a portfolio — most of which will fail. That’s the way the venture business works. And it’s a pretty good bet that they’re going to have a seat on the board. If you or your neighbor put in a couple of thousand bucks from the college fund into some startup that sure sounds interesting, you won’t have any say in guiding the company and you probably aren’t spreading your bets around. What’s more, there is sure to be a new industry of sites bringing sketchy ideas to eager bettors, errrr, investors.

We congenitally root for startups, because that’s where innovation comes from. But we also see a lot of crowdfunding plans and hear about a lot of startups that really shouldn’t be starting up. We think this is an awful idea.

 

Last updated by Dan Rosenbaum on February 1, 2017.

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