Keeping the Start-Up Party Going: The False Promise of Crowdfunding

NASDAQ_studioLast week, Donald Trump announced – with characteristic flair – his involvement with a crowdfunding startup named FundAnything. The Donald’s presence would be something of an embarrassment for many companies, but then the tech sector has never been above a little shameless self-promotion. In fact, it’s become something of a virtue in this age of “likes” and “thumbs-ups.” Product releases have evolved into Roman spectacles, featuring rock bands — or, in the case of Samsung’s (KRX:005930) Galaxy A4, an act on Broadway . One might question the choice of Trump for corporate mascot, or make fun of it… but it’s also refreshing, in a way. Strip away Silicon Valley’s youthfulness, its lingo, and its geeky coolness, and this is basically what you’re left with.

Crowdfunding is, by its purest definition, a way for aspiring entrepreneurs to pitch their ideas to the general public. Projects that would never get the backing of banks or private investors turn to crowdfunding platforms like Kickstarter and Indiegogo, where they can appeal to a more willing audience. The Pebble smartwatch was funded this way, with money from preorders being used to design and build the product. The 2012 JOBS Act was supposed to clear the way for equity crowdfunding – which would allow sponsors to buy an equity stake in a project, or essentially become angel investors – but the SEC is dragging its feet . Too bad, because crowdfunding would be a method of finance perfectly suited to tech startups, for whom “buzz” is frequently the surrogate for a business plan.

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