Avoid Those Urging Startups To “Get Ready For Investment Crowdfunding Now”

crowdfunding lawIn May of last year, the month following passage of the JOBS Act, I warned startups to watch the hypsters who were urging startups to sign up on portals and get ready for investment crowdfunding.  I pointed out that these would-be investment portals were far more interested in what they could do for themselves than what they could do for your startup.  At the time, portals were trying to show potential investors that they had deal flow and they were trying to establish their own brands.  The problem is that this was being done at the expense of startup companies that were being misled about the fact that they could count on investment crowdfunding to solve their near-term capital needs.  The reality was that anyone who knew enough about the issues that remained before investment crowdfunding could be effectively and economically used to raise capital were far too speculative and far too distant for cash-starved startups to wait.

Fast forward to now and absolutely nothing has changed.  In fact, there seems to be an even greater number of advisors, event promoters, service providers and potential portals pushing the “act now” or lose out mantra.  This is simply garbage.  My suggestion is that companies and founders use the same rules that credible modeling agencies tell parents about shady child modeling agencies.  If “getting ready” means paying someone money, you probably should take a pass.  If someone is telling you that investment crowdfunding is soon going to work for companies seeking investment, or for investment portals, or for broker-dealers, or for investors (accredited or otherwise), they are either uninformed, irrationally exuberant or ripping you off.  Pursue your other funding options as if investment crowdfunding is not your solution.  If that changes, you might want to pivot toward crowdfunding–just don’t count on it to be a solution based on what we know now.

Read more at Crowdfunding Law

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