Today I learned of a house bill aiming to legalize crowdfunding for for-profits. 80 years ago there were frauds walking around convincing people to invest in their bogus ideas. A lot of decent people lost a lot of money. To try and stop this, the US government passed laws meant to protect unsophisticated investors from these folks. In theory this sounds great. The problem is… how do you define "unsophisticated?"
I will grossly over-generalize here: the US government decided to essentially define it as "not rich." So, anyone who has a lot of money is assumed to know what they are doing and can invest in startups with few restrictions. Folks who aren’t rich face more restrictions. And so the not-rich are protected from loosing their money… sadly they also lose the opportunity to MAKE money. And we loose the benefit of the wisdom of that crowd!
The power of the internet is now allowing crowdfunding – lots and lots of small checks from lots and lots of people adding up to a big pile – but our legal code essentially forbids crowdfunding of for-profits. What if we could unleash that potential? There are obvious benefits (and risks). In general, I’m in favor. What about you?
Hat tip to Jason Calacanis.