But crowdfunding equity stock purchases for risky startups — the target of the JOBS act — cannot work for four main reasons:
- It is based on inappropriate extrapolations from other similar-appearing activities, such as donation crowdfunding (Kickstarter).
- Purchasing equity (stock) in early stage ventures is too innately complex to standardize.
- The conduct of due diligence in the ventures raising money will render crowdfunding prohibitively expensive and thus impractical.
- Crowds are stupid as often as not, or worse.
HBR - The Road to Crowdfunding Hell
More or less agree. I don’t think that due diligence will be impracticably expensive, but that’s only because I don’t think anything more than “check the box” diligence will be performed. Hell, it’s not unusual to see experienced VCs go through the motions when it comes to diligence—they’ll make plenty of calls, sure, but true diligence aims to identify latent assumptions and seek disconfirming evidence for those assumptions. The psychological truth is that when an investor’s excitement depends on accepting the premise of an idea, they will tend to do exactly that, at least until the weight of past experience provides sufficient counter to the excitements of the present.
