"Sites like Wefunder (disclosure: I'm a cofounder) and FundersClub put a lot of emphasis on vetting, for obvious reasons."
Yup, and this is essential.
The failure mechanic is that if you're successful, there will be a number of people who don't pass the 'vetting' but they want to participate. That demand will be met by people who don't do vetting, or choose to interpret vetting in a way that allows this person to participate.
A lot of the bad mortgages that were written in the real estate bubble were fraudulent, the "good" mortgage companies took care to insure that their customers could afford a mortgage and would be reasonably able to pay it back. The people who didn't qualify weren't served by them. Instead they were served by people who were less scrupulous.
This is the conversation we need to be on the look out for;
"Those guys turned you down because the rich folks don't want people like you getting in on this sort of deal and suddenly becoming rich like them, they are trying to keep you out by setting bars that says, 'Hey, if you aren't already rich you can't play here.' but that's not fair, is it? We are on your side, we're here to make you rich not to make rich people richer. Sure you can invest your 401k in so called 'index' funds, but with our clients will put it in a dozen different startups, anyone one could make you a millionaire and if two or more make it big, well lets just say I hope you remember the guy that made it possible for you. So are you in or not?"
Wefunder, FundersClub, the initial round of crowdfunding will all (hopefully) be great success stories. And if they are successful someone is going to create the "Countrywide" equivalent to them and fleece a ton of people. That is my fear and I don't know how to prevent it.
Right. It can be dangerous if reckless crowdinvesting platforms become prominent. There are already shady platforms out there today, but there are a few forces and barriers to entry that I hope will shape the space into a healthy one:
There's a lot of regulation around being a platform where folks exchange securities (e.g. equity and debt). Someone can't, for example, whip together a website with Stripe over the weekend. The SEC takes this pretty seriously, and because of all the money transfer regulations, it's very hard to move large amounts of money around without playing by the rules. (Heh, I wonder how long before someone tries a bitcoin-based crowdinvesting site. [Don't try this at home!]) This should help limit most of the potentially shady and dangerous platforms.
I think this will also be a space where a few established brands dominate the space, and strong brands and networks will draw strong startups. Without good deal flow, it's going to be real hard to break into the space. Even if you allow anyone to create company profiles and raise money, you still need to draw in investors. I'm sure some people will be suckered in, but I'm skeptical this sort of site will become large enough to create systemic problems. (/knocks on wood)
But that doesn't mean a platform can't establish itself and branch out to allow "wild west" crowdinvesting. Wefunder has plans to expand who can raise money, but we care a ton about doing it responsibly and safely and it'll look somewhat different than what we have today. I won't go into much detail here because some things aren't public yet, and I'm sure every other platform has it's own thoughts and plans about "going mainstream".
Over the next few years I believe people will become more mature about crowd funding thanks to Kickstarter, and I think the skepticism about crowdinvesting and memories from the startup bubble(s?) will be a negative force against too much hype. But there is a danger around a crowdinvested company becoming "the next Facebook" and everyone going bananas about investing in more. There's no sure-fire protection against that. We do our best to educate folks about ways to approach startup investing and the risks involved, and hopefully other platforms will do the same.
I think there'll at least be a lot of visibility into crowdinvesting as a whole. So if things start to get fishy people will talk about it, and the more it's talked about the more folks will (hopefully) be cautious. (Maybe what we need is a crowdsourced SEC to help protect investors ;))
And finally, I think the space will evolve past "Kickstarter with an Invest Button" and the crowd will get better at doing diligence. There will be cases of things getting lots of funding that shouldn't, but that'll happen every now and again.
But who really knows, these are just my personal thoughts and speculations. I'm an optimist and want to believe in a happy crowdinvesting future. :)
Yup, and this is essential.
The failure mechanic is that if you're successful, there will be a number of people who don't pass the 'vetting' but they want to participate. That demand will be met by people who don't do vetting, or choose to interpret vetting in a way that allows this person to participate.
A lot of the bad mortgages that were written in the real estate bubble were fraudulent, the "good" mortgage companies took care to insure that their customers could afford a mortgage and would be reasonably able to pay it back. The people who didn't qualify weren't served by them. Instead they were served by people who were less scrupulous.
This is the conversation we need to be on the look out for;
"Those guys turned you down because the rich folks don't want people like you getting in on this sort of deal and suddenly becoming rich like them, they are trying to keep you out by setting bars that says, 'Hey, if you aren't already rich you can't play here.' but that's not fair, is it? We are on your side, we're here to make you rich not to make rich people richer. Sure you can invest your 401k in so called 'index' funds, but with our clients will put it in a dozen different startups, anyone one could make you a millionaire and if two or more make it big, well lets just say I hope you remember the guy that made it possible for you. So are you in or not?"
Wefunder, FundersClub, the initial round of crowdfunding will all (hopefully) be great success stories. And if they are successful someone is going to create the "Countrywide" equivalent to them and fleece a ton of people. That is my fear and I don't know how to prevent it.