This scares me way more than sub prime mortgages. The stories of how granny and gramps put the remains of their retirement savings into "startups" because they have like 1000x returns right? And then want their money back and discover that some large fraction of these companies are kids with no clue, no work experience, and have just burned through their 'seed' round buying a server farm that turns out overloads the circuit breakers in the garage.
Rational folks will say "Gee, that was a poor choice on their part." but the rest of the world will be screaming "Ponzi!" "Tricksters!" "Scams!" and it will be sad sad sad.
I really hope that I am wrong, but I really like the accredited investor rules, it selects from a smaller pool of victims.
Except the JOBS Act would only let granny and gramps invest $2000/year in startups. Folks making over $100k/year can invest 10% of that. [1]
I'm still not sure it's a good deal for the classical web startup, but it seems like it has reasonable protections to keep less sophisticated investors from losing their shirts.
I really like the accredited investor rules, it selects from a smaller pool of victims.
And a wealthier pool of beneficiaries.
Wonder why the 99% crowd isn't going after these: laws which explicitly discriminate against non-millionaires, unlocking investment opportunities for the rich not permitted to the other 99%. It's disgusting injustice.
I think a lot of how crowdfunding plays out will depend on the way it's marketed to people. If the marketing by and large ends up being signs painted "Easy money this way! ->" then it's doomed from the start.
I've had 6 figures in funds (but not 7) that I would have been investing in startups over the past 4 years, but I have not been allowed to because people like you think I should be prevented.
Meanwhile, any weekend I choose, I could have gone to Las Vegas and blown the whole lot in a weekend.
This is just another example of where regulation is used to keep regular people behind and to benefit the well connected and wealthy.
You misconstrue my concern. I am happy to allow anyone who is willing to risk losing everything, give their money to some entrepreneur in the hopes of a big payday. It is exactly like going to Vegas with your funds and throwing it away.
My concern is that the exact argument was used with 'sub prime' mortgages as well, which was that plenty of people who couldn't qualify with the existing rules were perfectly capable of paying a mortgage. And they did. There are thousands, if not tens of thousands, of people who did not qualify under the 'old' rules but could get in under the 'new' looser rules. More money was unlocked for mortgages, more mortgages were written, unscrupulous people exploited than and herded that money into a giant pool of risk and when the balloon went up, blam! We took a big hit which we are collectively paying off through a stagnant economy.
That exact mechanism (to my way of thinking, happy to find someone who can show me why I shouldn't worry) is going to be enabled by the combination of the JOBS Act and stuff like this. Unscrupulous people will convince folks to invest in startups. There will be LOTs of money chasing few startups, valuations will skyrocket as the money tries to find a place to land which will on paper present illusory massive returns (on paper).
This is exactly analogous that the sub-prime rule changes allowed more people to buy houses, but the supply of houses didn't suddenly go up so the price per house when up instead. That raised house valuations which allowed for 'flipping' and some quick gains which people exploited which drove a bubble in real estate.
There aren't that many more startups, and startups that can't get funded today suddenly have access to funds that lets them get funded. So now you, with your 100K$ of 'mad money' to invest get less equity for your investment and your risk is increased because there are more places out there which are bad investments, getting funded anyway and creating noise in the system.
We showed quite clearly in the 90's that when 'retail investors' aka people with money they really can't afford to lose but seeking returns that aren't defensible by economic reasoning, get involved, the sharks come out and fleece them. After the fact a few of the more egregious offenders get prosecuted but the cost is huge.
We should know better. We should find a way to let you invest where you have to make some sort of binding personal responsibility oath which says "I will never ever ask anyone else to cover my losses by this activity even if those losses are the direct result of being swindled by a smooth talking tool of a salesguy."
If you're willing to sign such an affadavit, then more power to you.
Rational folks will say "Gee, that was a poor choice on their part." but the rest of the world will be screaming "Ponzi!" "Tricksters!" "Scams!" and it will be sad sad sad.
I really hope that I am wrong, but I really like the accredited investor rules, it selects from a smaller pool of victims.