To Crowdfund or not to Crowdfund, that is the question…(with apologies to the Bard)

“To be, or not to be, that is the question—whether ’tis nobler in the mind to sufferRM4forweb
the slings and arrows of outrageous fortune, or to take arms against a sea of troubles…”

(The famous opening phrase of a soliloquy in the “Nunnery Scene” of William Shakespeare’s plays Hamlet.)

In much the same way, the entrepreneurial world continues to struggle with whether ‘tis nobler to fund startups with crowds or follow the traditional path of angels to venture to mezzanine to IPO/ exit.  Over the last couple of years, the investment community, the legal community, the entrepreneurial community, just about every community with a stake or opinion in this debate have weighed in— some more heavily than others.  The SEC, true to most entities that are governmental in nature, have taken considerable time thinking about this, pondering this, requesting public input about this, and even (gasp!) have published some rulings. Of course, the rulings aren’t complete…that will require more thinking, pondering, public input requesting, etc.  And therein lies part of the problem.

It’s been said that nature abhors a vacuum.  In that way, apparently equity-based investing is a natural thing.  The vacuum caused by the SEC’s inaction is being filled.  There are now more than 100 funding sites providing access to donations (at this point) for activities and entities.  Because there aren’t clear rules as to who can invest how much and when, the original model of “donations” comprises the majority of crowd sourcing of fundings.  Some of these are now very familiar names—IndiGoGo, Kickstarter, RocketHub are just a few.  But these “donation model” sites are now being joined by new sites.  These sites are calling themselves funding “portals,” providing a vetting of sorts of deals in which accredited investors can choose to invest. Ultimately, the SEC will complete the thinking process and craft a complete set of rules for crowdfunding making these investments available to unaccredited investors as well, and more importantly, funding to the entrepreneurial ventures that so desperately need it.

While the SEC continues to struggle to come to a decision, there is a rigorous debate as to whether or not crowdfunding should be allowed at all.  My belief is that the debate is a good thing.  This is important enough to enough people to actually care enough to talk about it.  If the subject of crowdfunding is causing these heated discussions, there is probably some validity to the model.  Will everyone become millionaires through these crowd-sourced investments? Certainly not. Will all of these unaccredited investors lose everything to unscrupulous predators? Again, certainly not.

What is certain, to me anyway, is that the economic vitality of our country needs funded startups.  If traditional VCs and Angel groups can’t fund all the deals that should be, and there are individuals in the crowd that want to, shouldn’t there be a way? It is, after all nobler!

What do you think?

Bob McCarty