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If Crowdfunding is the New Day Trading, Look Out

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Re: If Crowdfunding is the New Day Trading, Look Out

#11

Post by ig1 »

fiatmoney wrote: post #5

I see an interesting parallel of "crowdfunding" to MOOCs. The original (private capital / high-prestige colleges - or their synthesis in Harvard, a hedge fund with a university attached for tax purposes) is a clubby self-dealing arrangement designed to preserve a certain level of oligopoly profits. The cheap substitute gets held up as a way for the average person to buy into that system, when it's really a way to dum…

That's a straw man arguments, I don't think anyones claiming that doing courses on Coursera is the equivalent to a Stanford degree. Certainly the universities aren't.

Re: If Crowdfunding is the New Day Trading, Look Out

#12

Post by jonnathanson »

ig1 wrote: post #9
jonnathanson wrote: post #8

Earlier quoted context omitted.

Exactly, and it is really hard for me to see a scenario in which this whole thing ends well. It's basically inviting a huge pool of suckers to the table, gambling on terms set by the dealers, with payouts engineered and controlled by the dealers. Just about the only way for this to work, without causing a ridiculous speculative bubble, would be to force increased transparency of the financial documents of private com…

I still think it should be legal. After all you can take $10k and spend it at a Casino, there's no reason you shouldn't be able to gamble it on a company. Although there are other reasons for investing other than financial returns, for example you believe in the mission of the company or you want to be a customer of the business.

I'm not arguing against its legality; I'm arguing that it's dangerous as written. It needs more enforcement of transparency on the side of the companies. The difference between gambling and "investing" of this sort is that at least gambling is 100% transparent. You know exactly what the odds are at the roulette table. And most people who gamble (barring those with addictions, of course) realize they're gambling; most of the new people who will "invest" probably won't believe they're gambling.

"Although there are other reasons for investing other than financial returns, for example you believe in the mission of the company or you want to be a customer of the business."

Sure, but that's what services like Kickstarter are for. Let's not kid ourselves into thinking that most Mom & Pop retail investors are going to be day-investing in small businesses out of high-minded principle. They're going to see dollar signs and dream of getting rich quickly. And there will be plenty of people ready and waiting to sell them those dreams.

Maybe it'll take a bubble or two to get people to realize the dangers involved, and eventually, it'll normalize into sort of what day trading has become. But there will be pain before then.

Re: If Crowdfunding is the New Day Trading, Look Out

#13

Post by badman_ting »

showerst wrote: post #3

I disagree that just because most people who day trade lose money, that wider access to the markets is a bad idea. I'd rather have the option to enter a market when the odds are against me than not have that option at all.

Well, I'm not sure if the author is saying that the access period is a bad idea, or that availing oneself of it is a bad idea.

I would certainly agree with the latter. As for the former, we already have a lot of ways for people to throw their money away, so why not one more. Literal actual gambling is legal in many places, perhaps even most, so I don't think I could argue against this form of gambling being available too.

Re: If Crowdfunding is the New Day Trading, Look Out

#14

Post by jseliger »

ig1 wrote: post #6

Crowdfunded equity investments should be treated as gambling, don't do it unless you're willing to lose money. Over half of traditional angel investments don't return the investors money and 90% of the returns come from 10% of the companies. These are traditional angels who are well connected, do due diligence, etc. With crowd-funding from the start you face an adverse selection problem, a lot of the "best" looking s…

Crowdfunded equity investments should be treated as gambling, don't do it unless you're willing to lose money.

Definitely.

With crowd-funding from the start you face an adverse selection problem, a lot of the "best" looking startups are going to take money from well respected angels and are going to fill up their seed rounds long before they need to turn to crowd-funding

I wonder about the extent to which crowdfunding is optimal for situations like startups versus the extent to which it is optimal in other fields, like real estate development (http://www.slate.com/articles/business/moneybox/2013/06/fund...).

Still, based on my reading of A Random Walk Down Wallstreet and The Millionaire Next Door, most people doing retail investing do not beat the market.

The good news in the case of crowdfunded equity investments, however, is that even if 90% fail, that last 10% may pay for some really cool stuff that wouldn't exist without the crowdfunding, in much the way that Amazon is enabling lots of people to publish shitty ebooks but it also enabling a small number of important books that wouldn't have gotten traction in the conventional system to get traction.

Re: If Crowdfunding is the New Day Trading, Look Out

#15

Post by notahacker »

ig1 wrote: post #9
jonnathanson wrote: post #8

Earlier quoted context omitted.

Exactly, and it is really hard for me to see a scenario in which this whole thing ends well. It's basically inviting a huge pool of suckers to the table, gambling on terms set by the dealers, with payouts engineered and controlled by the dealers. Just about the only way for this to work, without causing a ridiculous speculative bubble, would be to force increased transparency of the financial documents of private com…

I still think it should be legal. After all you can take $10k and spend it at a Casino, there's no reason you shouldn't be able to gamble it on a company. Although there are other reasons for investing other than financial returns, for example you believe in the mission of the company or you want to be a customer of the business.

Casinos are heavily restricted in how they're allowed to represent themselves though; in particular they usually can't masquerade as a good proposition for increasing your savings, or emphasise you'll earn so much more with them than at all the other casinos. I'd be all in favour of allowing public soliciting of investment which basically restricted it to statements along the lines of "if these hunches are right there's a small chance you'll end up with more money than you started with", which for most ventures relying on retail investors is basically the only pitch which is honest.

I'm in favour of people that believe in the mission or want to be a customer spending money on startups, but think the Kickstarter model of soliciting the funding without pretending it has a nontrivial possibility of financial returns already nailed that.

Re: If Crowdfunding is the New Day Trading, Look Out

#16

Post by shubb »

ig1 wrote: post #11
fiatmoney wrote: post #5

I see an interesting parallel of "crowdfunding" to MOOCs. The original (private capital / high-prestige colleges - or their synthesis in Harvard, a hedge fund with a university attached for tax purposes) is a clubby self-dealing arrangement designed to preserve a certain level of oligopoly profits. The cheap substitute gets held up as a way for the average person to buy into that system, when it's really a way to dum…

That's a straw man arguments, I don't think anyones claiming that doing courses on Coursera is the equivalent to a Stanford degree. Certainly the universities aren't.

But they are charging plenty of money for University of Phoenix Online courses.

The statistics, that a disproportionate number of graduates from Phoenix and places like that are unable to make student loan payments, tell you that they are not returning on investment for those students.

If you are poor, and study very hard, it is possible to win a scholarship at a reputable college, and achieve social mobility that way. Pretending that people who have not worked hard enough to win a scholarship can become middle class by taking out a loan is a dupe. They would do better to join the army for that purpose.

Re: If Crowdfunding is the New Day Trading, Look Out

#18

Post by sharemywin »

Non-acredited investors are only allowed to invest 5% of their income. If grandma aint't got no income she ain't losin' alot of money. As long as all transaction go through marketlaces and the marketplaces are forced to validate the limits. Then no one is losing their life savings. Personally, The better option is to force the state lottos to inact the 5% limit and worry about the crowdfunding.

Re: If Crowdfunding is the New Day Trading, Look Out

#19

Post by ig1 »

shubb wrote: post #16
ig1 wrote: post #11

Earlier quoted context omitted.

That's a straw man arguments, I don't think anyones claiming that doing courses on Coursera is the equivalent to a Stanford degree. Certainly the universities aren't.

But they are charging plenty of money for University of Phoenix Online courses. The statistics, that a disproportionate number of graduates from Phoenix and places like that are unable to make student loan payments, tell you that they are not returning on investment for those students. If you are poor, and study very hard, it is possible to win a scholarship at a reputable college, and achieve social mobility that wa…

MOOC != University of Phoenix

Re: If Crowdfunding is the New Day Trading, Look Out

#20

Post by arbuge »

breckinloggins wrote: post #10

The nice thing about Crowdfunding is that, like traditional trading, motivations vary. For example, I recently backed the Infrared Human Vision study on Microryza [1] simply because it sounded like cool research. I backed the Ubuntu Edge even though I knew it would most likely fail to reach its funding goals because I wanted to send a message that there's a market for a "pocket to desktop" convergence device. I sent…

>> The nice thing about Crowdfunding is that, like traditional trading, motivations vary.

Most certainly they do but I'm guessing that a large chunk of the crowd will be going into this thinking it's a surefire way to make money.

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