Kickstart your startup! SEC votes on crowdfunding

Dan Weissmann Oct 23, 2013
HTML EMBED:
COPY

Kickstart your startup! SEC votes on crowdfunding

Dan Weissmann Oct 23, 2013
HTML EMBED:
COPY

The JOBS Act of 2012 made legal room for a new kind of investing: crowdfunding. Think Kickstarter, but instead of getting a t-shirt, you’re buying a piece of a company. After a year and a half of deliberations, the Securities and Exchange Commission meets today to consider regulations for crowdsourced venture capital.  

These rules are for small-time investors — people without a few million bucks to burn. One concern is how the SEC can protect them from con artists.

The good news is that fraud is rare in crowdfunding, says Richard Swart, a partner at Crowdfund Capital Advisors, because the platform itself makes fraud more difficult.

The crowd seems to be able to detect anomalies within a few hours,” he says. “Twelve to 15 hours is common. The campaign will be flagged for review.”

That’s the good news. The bad news is, even without bad faith, the risks are huge. 

Start-up investing means trying to pick the next Twitter or Facebook out of a field of thousands.

“Those are very, very rare companies. You know, there’s two of those minted a year,” says Naval Ravikant, co-founder of Angel List, a company that already does crowdfunding with high net-worth investors.

“If you have 50 investments and two of them turn out to be big hits, you’re doing way above average,” he says.

Those hits make up for the money you lose on the others. “In most cases, you lose everything,” he says.  “Your entire investment.”

That’s right — you don’t even get a hoodie.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.