Crowdfunding -- Less Useful and More Risky?

Friday, January 30, 2015

It's great that Maine and about fifteen other States are making it easier for startups to raise money by authorizing crowdfunding -- a money-raising strategy that may be a way of assisting small businesses and start-ups looking for investment capital to get their ventures off the ground. 

Crowdfunding is an option for some entrepreneurs .  But there are plenty of ifs, ands, and buts that go along with crowdfunding.  What about complying with federal law?  Required.  Complying with the law of any other state in which investors reside?  Required.  Substantial legal oversight and advice and financial reporting capabilities?  Required. 

What about investors?  Investors should be extremely cautious about crowdfunding.  The companies involved may be new and inexperienced, information about the investment may be limited, regulatory oversight may be limited, the investments may not be liquid (it may be impossible or very difficult to cash-out), and the risk of loosing money may be off the charts.

Information from the Maine Office of Securities can be found here.

As reported in recent press, entrepreneurs can now lawfully raise capital by crowdfunding in several states.  But the utility of this tool for most entrepreneurs is limited and, as is the case with many other forms of private offerings,  the risk to investors can be substantial.

1 comment:

Ricky Ponting said...

Nice post and very creative too.

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