If Crowdfunding is the New Day Trading, Look Out
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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
#2If you don't know who the sucker at the table is, it's you.
Re: If Crowdfunding is the New Day Trading, Look Out
#3I 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.
Re: If Crowdfunding is the New Day Trading, Look Out
#4I 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.
Related to this, I do think the question of what should or shouldn't be legal is a bit of a separate question. Of which this data is only one part. (to be transparent, I'm the author of the post)
Re: If Crowdfunding is the New Day Trading, Look Out
#5I 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 dump an inferior product on the public with the same brand and none of the private advantages that make it worthwhile in the first place.
Re: If Crowdfunding is the New Day Trading, Look Out
#6Crowdfunded 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 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. So with crowd-funding you're left trying to find the good companies (which there are significantly less) which aren't obviously good from a surface analysis.
So rather than 10% of the companies returning 90% of the returns with crowd-funding it might be closer to 5% or 1% of companies (only time will tell us the exact numbers).
Re: If Crowdfunding is the New Day Trading, Look Out
#7If you don't know who the sucker at the table is, it's you.
Exactly. Crowd funding is an ideal source of capital for con artists.
"We are a team of Nigerian Bankers, and with your donations we will raise enough money to give you double what you contribute!"
"We are a team of scientists who have discovered this one wierd trick that the medical community doesn't want you know about. If we meet out goals, you can receive the new wonder pill that adds 3 inches to your penis!"
The future's gonna be interesting...
Re: If Crowdfunding is the New Day Trading, Look Out
#8Crowdfunded 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…
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 companies (thus blurring the lines between private and public, which is opening a can of worms in its own right).
Success in angel investing is predicated on two things: 1) access to the best deals on the best terms, and 2) enough capital to absorb losses in search of outsized hits. Retail investors have neither of these things going for them, so what they're doing amounts to little more than playing roulette.
Re: If Crowdfunding is the New Day Trading, Look Out
#9Crowdfunded 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…
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.
Re: If Crowdfunding is the New Day Trading, Look Out
#10The 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 a few dollars to Oculus on Kickstarter because I wanted to see that become reality.
I'm not naive... I know that as this gets bigger there is going to be room for technical trading, abuse, and an emergence of some myopic thinking similar to the "quarter-by-quarter" tunnel vision that plagues public companies on Wall Street. But the thing I like the most about crowdfunding is that it takes this long-standing idea of "principled investing" and really lets you put your money where your mouth is.
[1] https://www.microryza.com/projects/can-we-biologically-exten...