Charles Luzar, the Director of Crowded Media Group and CrowdfundInsider.com, recently wrote a great article for Venture Beat, called “Why Regulators are Dead Wrong about Crowdfunding and Risk.” He accurately states that the argument that equity crowdfunding is too risky for the average investor is a bogus narrative. Are there are legitimate, well-founded concerns regarding transparency, conflict of interest and investor education that should be addressed when it comes to crowdfunding? Absolutely, but that’s why there are regulatory organizations in place to keep the investors and borrowers participating in the crowdfunding platform protected and informed.
One such organization which SoMoLend founder, Candace Klein currently chairs is the Crowdfund Intermediary Regulatory Advocates (CFIRA), a leading crowdfunding advocacy organization charged by the Senate to recommend regulations, standards and best practices for crowdfunding. We understand that these concerns are valid, but ultimately they are the same concerns that exist with any other type of investment.
It’s also important to note, that there is more protection for the individual investor in crowdfunding when they have the buy-in of the crowd than there is with other investment opportunities. Investors in crowdfunding are not going to be only non-accredited investors, but also accredited investors. And non-accredited investors will now have the opportunity to invest alongside accredited and institutional investors. They’ll have access to institutional and accredited knowledge, which they’ve not had in the past.
Investors need to do their due diligence and not be dissuaded by ill-informed media and scare tactics. As Luzar accurately stated, “U.S. citizens interested in equity crowdfunding should and will have tools at their disposal to make educated, pragmatic decisions on which companies to invest in.”
You should also be comforted in knowing that crowdfunding will be heavily regulated by the SEC and FINRA. Additionally, the industry is working proactively to comply with not only legislation but also to provide the most investor education possible under the legislation. For example, in the instances of donation- and reward-based crowdfunding, every instance of fraud to date has been uncovered within 24 hours…by the crowd.
Legislation has been passed. Now, we must work together to democratize access to capital while at the same time protecting those parties who are actively engaged in the process.
As Luzar wrote, “Do we sell American investors short by saying they aren’t smart enough to make an educated decision with their money?” We say absolutely not.