Crowd funding is awesome for retail investors! One challenge I would see with crowdfunding are following. How do we mitigate these?
- Start up founders are more and more getting greedy with valuations with no product/proof of concept in hand. A lot of tooling is needed to provide enough context to the retail investors to rightly evaluate a new start-ups.
- While evaluating potential crowdfunding opportunities, retail investors don’t know if there any other startups who are working in similar problem space.
Both valid comments, there are a few quick answers to make the severity of these problems perhaps less worrisome:
1) the average investment in a successful crowdfunding campaign is only $96. So, the real risk vis a vis the founder's self-proclaimed valuation is not only mitigated by this average, but there are also caps on how much a retail investor can invest annually in crowdfunding. For instance, anyone earning under $107,000 annually, can only commit $2200 or so. 5% of their annual income. I'd say there are far more dangerous "investments" people make with far more predictably bad outcomes (hamburgers?).
2) as to how to know if other, potentially better, candidates for your money are making similar solutions available to investors, that's always hard to say, but I'd say you might reconcile "Caveat Emptor" dictates responsibility in both of these questions: "the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made."
So, do your homework. I mean, you' wouldn't buy a house sight-unseen without looking over the neighborhood, checking out the schools, etc.
In addition to my comments above, note that I was referring to general contributions to a campaign. For Equity-specific campaigns, the average is closer to $750 per person. So, while that number is considerably higher, it's certainly not buying a house! For more information on the equity space, this link was provided by one of our directors at the CfPA who also works at Kingscrowd, a CfPA sponsor who provided the data: https://kingscrowd.com/2021-kingscrowd-market-intelligence-report/