Dan Primack, who writes the “Term Sheet” blog for Fortune and who has strong connections to the Triangle startup community through UNC Kenan-Flager’s annual business plan competition, remains unsold about the whole concept of “crowdfunding.”
As part of the JOBS Act signed into law one year ago, crowdfunding was supposed to provide a new means of funding startups.
For one thing, Primack wrote Friday, “it’s been 365 days since the SEC was given a task that it has so far failed to complete.”
Last week, Primack voiced specific concerns.
“Equity-based crowdfunding is basically seeking to democratize venture capital – allowing ordinary folks to invest in startups that may be disenfranchised by the traditional funding model (perhaps due to location or industry),” he wrote.
“But one thing we know about venture capital is that it is among the most difficult ways to generate high investment returns. … Angel investment returns are even scarier.
“Now you’re introducing unsophisticated investors into a new market that has an increased likelihood of issuer fraud. Moreover, the pool of available investments will have negative survivor bias – since many of the most promising startups still will go to traditional VCs.”
Primack also warns:
“Remember, equity-based crowdfunding is different than Kickstarter. The only tangible return here is money, not a trendy watch.”
WRALTechWire has published numerous stories about the concept and related legislation. (See links with this post.) If you are thinking about crowdfunding your startup or becoming a crowdfunding investor, you probably need to do plenty of homework first.