Kickstarter, but With Stock

I could go to vegas and drop $40k in cash on the casinos, gambling it all away. There&#x27;s nothing to stop me from dong that.<p>But even with 20 years experience in startups, I can&#x27;t put $40k into a startup&#x27;s round?<p>Slate would say I need to be &quot;protected&quot; from that?<p>Sorry, in this case, the regulations that only allow the well connected and wealthy to invest in startups also serve to keep those with domain expertise out of the market.<p>All too often regulations are used to exclude competition. This is one example.

<i>“We find it very hard to believe that any attractive companies will use” non-accredited investor crowdfunding</i><p>On any given day, there are millions of English-speaking people on the internet. If you can capture the hope and imagination of those people, they will give you money, and the total amount you receive will be significant. Alternatively, if you can convince a small number of them to give you a large sum of money (à la Occulus), your result will be the same. This, obviously, requires the right sort of idea; one that resonates with large numbers of people, or resonates so strongly with a small number of people that they&#x27;re willing to part with hundreds of dollars. But it&#x27;s quite possible, and I see no reason why a serious company wouldn&#x27;t explore this possibility.<p>On the other hand, after reading some history about the concept of the stock market, I think legal protections aren&#x27;t a bad thing. The goal is to protect uninformed consumers from predatory behavior. It&#x27;s an important goal, because no one likes admitting they&#x27;re uninformed (least of all to themselves) so you end up in a situation where people are throwing around their nest eggs at emotional appeals (companies who convince you that they can make your fantasy happen). It&#x27;s easy for people to convince themselves they&#x27;ve stumbled onto a big opportunity, and it&#x27;s rather easy for them to believe in it so strongly that they&#x27;re willing to invest large sums of money; sums they sometimes can&#x27;t afford. If their investment disappears, so does their ability to participate in the economy. The history of the idea of stocks is filled with this sort of behavior, and sometimes the consequences can be disastrous. Due to information asymmetry, those tempted to invest in a new phenomenon are usually the ones least qualified to judge whether the phenomenon will yield returns. Hence, predatory behavior, and the original motive for protective legislation.<p>There&#x27;s a balance to be struck between taking advantage of small sums of money from millions of people, and protecting those people from dumping money they can&#x27;t afford into a new phenomenon. Some tasteful regulation isn&#x27;t necessarily a bad thing.

How does crowdfunding successfully work in the UK, but not in the US? Having done startups in both environments, structurally, I don&#x27;t see much of a difference.<p>UK crowdfunding websites for reference:<p><a href="https://www.seedrs.com/" rel="nofollow">https:&#x2F;&#x2F;www.seedrs.com&#x2F;</a><p><a href="http://www.crowdcube.com/" rel="nofollow">http:&#x2F;&#x2F;www.crowdcube.com&#x2F;</a>

This whole &quot;controversy&quot; over companies who do Kickstarters and later raise money (or sell their company) seems overblown. When you&#x27;re backing a Kickstarter for these types of companies you&#x27;re often trying to get the product as a pre-order. So in addition to a potentially low margin business, these companies are now supposed to feel inclined to give you -- the customer -- equity in their company? As a backer, do you want the product or do you want the equity? They are two completely different ideas that seem to be conflated in the press. Perhaps all this controversy is fabricated by the press and not an actual problem.<p>Kickstarter in particular is about rewards and&#x2F;or patronage. There is an avenue for equity based crowdfunding elsewhere, the question is whether there is a big enough demand on the consumer side (with people who have little information about the company) and the business side (with founders who don&#x27;t want to share equity). I&#x27;m not referencing AngelList, but rather companies who would run Kickstarter-like projects.

&gt; From an investor’s perspective, crowdfunding operates most similarly to angel investment. But most crowdfunding investors won’t be able to act like successful angel investors. “Successful angel investors invest in industries they know well, do a lot of due diligence, spend time mentoring the companies they invest in, and diversify their investments,” said Dorff.<p>A single non-accredited investor may not invest as well as an experienced angel investor. But the idea is to invest with &quot;the crowd&quot;. The funding sites will help with some of the due diligence, and people will gravitate to the most promising startups. Instead of providing advice individually, the crowdfunders will provide group feedback, marketing, etc. And they&#x27;ll be able to diversify just like angels, since they&#x27;ll invest smaller amounts in each startup.

&gt;Had the backers received company stock instead of company T-shirts, they would have seen close to a 1,000 percent ROI.<p>This assumes Oculus would have sold 100% of its shares at a $2 million valuation, and then still sold again for $2B after the developers had cashed out.<p>It&#x27;s a nonsense comparison.

A lot of people dont realize that that you can begin trading stock OTC by just filling some paperwork with the SEC though lawyers fees for that paperwork are not cheap. You can do what is called direct public offering and directly sell your stock without using an exchange aka over the counter. Many people refer to these stocks as penny stocks and the OTC market as the pink sheets. What these new laws are trying to change is the way you register to sell OTC and the people you are allowed to sell to. The real problem is that just like no one trusts penny stocks and the otc market no one is going to trust crowdfunded stocks. They are going to be full of scams and pump and dump schems. Just look at the movie wolf of wall street for an example of the kind of scheming that goes on in the otc markets

Let&#x27;s get one thing straight - the SEC &quot;worrying&quot; about fraudulent behavior in crowd-based equity is laughable.<p>Yes, fraud can happen in crowd-based equity - that&#x27;s not what I&#x27;m talking about though.<p>What is laughable is that the one thing the SEC is supposed to monitor (the stock market) is the single biggest fraud perpetuated on the American people. It is where young, naive people like myself put their life savings only to have it crushed by people who were richer than me, who could generate volume on whim, perform insider trading while not worrying about the consequences, and take bailouts from a government that milks the rest of the population for taxes. I&#x27;ll honestly be damned if the SEC isn&#x27;t in the pocket of those who would benefit from it.

&gt;The SEC estimates that it would cost $39,000 in fees to accountants, lawyers, and the funding portal to raise just $100,000, and more than $150,000 to raise $1 million. Those are insanely high capital costs—companies would be better off financing their operations with credit cards.<p>15% on money that never has to be paid back? If we&#x27;re comparing to Kickstarter, fees are at least 8% and you are contractually obligated to supply a product.<p>&gt;For comparison, underwriting fees for a large public offering are usually under 4 percent.<p>Why are we comparing this to a large public offering?

You&#x27;d have to be crazy to give away stock as part of a kickstarter campaign. Even it were possible I can&#x27;t imagine many project creators making that choice. The numbers just don&#x27;t make sense. Especially given how successful kickstarter has been without it.

Honestly, I don&#x27;t think it&#x27;s going to work because a small number of people are always going to try to cheat the system and end up ruining the whole thing.