Tech Devil: Crowdfunding
The recent passing of the JOBS Act by Congress and then the President will “make it possible for entrepreneurs to raise money from anyone they want to,” according to Rafe Needleman of CNET.com. This is a huge step forward for what is known as “crowdfunding.” Crowdfunding as defined by Wikipedia is “the collective cooperation, attention and trust by people who network and pool their money and other resources together...to support efforts initiated by other people or organizations.” It has become commonplace for smaller investments for projects ranging from music videos to consumer products like watches. Sites such as Kickstarter and CrowdTilt provide the platform for small-scale investing. But with the passing of the bill, everyday people will become venture capitalists.
If you hear of a startup and you or your grandma want to invest $100, you can. We will soon see the next big startup with a funding list of possibly hundreds of individuals along with major venture capitalist firms like Sequoia Capital and Andereessen Horowitz. Now no one company will get the full funding they need purely from people investing $100 at a time, but wealthier people who may not have met the previous requirements will be able to invest in the thousand-dollar range.
Hopefully people will take advantage of this opportunity to become firsthand stakeholders in the tech startup world. This doesn't apply strictly to tech startups either. Any startup can now attract funding form individuals. But this has some major downsides that we all must be cautious about.
Many critics of the bill state that it will open the door for scams and investor fraud. I understand the issue but the market will straighten itself out. Now that everyday citizens will be investing, they'll have to make sure they're responsible for what they invest in. I would hope people do their research before investing even $50 in a company. My main suggestion would be that if a startup has no funding from major venture capitalist firms, it's probably not a safe bet. Granted, there are exceptions, but it's all up to the individual. If someone wants to invest their life savings into a sketchy tech startup that bills itself as “Instagram for cats,” then have at it. But don't blame me when you find out the company is based in rural Kansas instead of Silicon Valley and is just some guy with too much time on his hands
I don't know if I'll have the money anytime soon to invest in a few startups that have caught my eye, but it would be cool to be a “part-time venture capitalist.” So the next time you have a bunch of money that you don't know what to do with, invest it in a company that makes an app that you spend hours of your life using.