Crowdfunding might actually go legit

Due to Dad’s lifelong passion for small public offerings, I’ve been watching the evolution of crowdfunding in recent years. Even though it exhibits many of the qualities Dad thought should exist in allowing small investors to participate in small scale funding of businesses, Dad never much responded to the crowdfunding idea. Too newfangled.

crowdfundingToo late now, but possibly he’d have gotten a bit more interested now that it’s getting much wider and more serious consideration. The crowdfunding proposal that’s been at the SEC for a while now has still not been ruled on, but more and more voices are being heard on the topic. It is starting to feel like it is inevitable that some reasonably robust form will get cleared.

An article today in the NYT gives a good summary of the state of play: “Pennies from Many“. Many good points are offered, including this synopsis of crowdfunding:

“Crowdfunding has the sort of populist, common-sense appeal that resonates with free-market libertarians and champions of the working class. By marrying online social networks with finance, this model offers a more democratic model of finance, in which individuals can directly fund other individuals or businesses that they deem worthy, without going through a bank or Wall Street middleman.”

And apparently, even the Obama adminstration, which in many ways seems intent on tightening the reins on commerce wherever it can, supports it:

“The Obama administration… is supporting crowdfunding…President Obama, as part of his jobs act, advocates an exemption for sums totaling up to $1 million.”

The key issue is how the SEC wants to proceed. They have, for years, enforced very tight restraints on who can invest in what. In my opinion, these restraints are a contributing factor in the concentration of wealth that has risen over the past generation. The SEC, in its efforts to protect regular folks from being ripped off by scams, only allows the wealthy to invest in deals that generate wealth. One can understand why they want to protect people from the downside risk, but as they do so, they also prevent them for participating in the upside gains. Not obvious to me that they’ve struck the right balance.

Even if the SEC approves crowdfunding, it surely won’t fully address the imbalance since the most attractive deals will continue to flow through VCs and i-banks, but still, it would be a step in the right direction.

Leave a Reply

Your email address will not be published. Required fields are marked *