The Corliss Group Latest Tech Review – The concept of crowd funding new technology companies took a hit earlier this year when Oculus was bought by Facebook for about $2 billion.
Participants in a $2.4 million Kickstarter campaign that helped fund Oculus and its development of a virtual reality headset, wound up with nothing to show for their support, while the founders and early investors scored astronomical gains.
In the wake of the bitterness over the deal, there are movements to change laws that limit the sale of equity stakes to small investors.
Slava Rubin, CEO and founder of crowd-funding platform Indiegogo, says that eventually those laws, including the so-called JOBS Act, will evolve in a positive way.
“It’s about access to capital. It will democratize investing,” he told MarketWatch at the Nantucket Conference in Massachusetts, a gathering for tech entrepreneurs and others recently.
Current laws, including the JOBS Act, prevent private companies from selling shares to unqualified investors, those with less than $1 million in assets and $200,000 income.
While changes in the laws would open access to capital for startups, regulators argue that unsophisticated investors in such companies could easily lose their shirts. After all, such equity tends to be highly illiquid, and many startups fail. In addition there are concerns over fraud.
Rubin said that people should differentiate between fraud and failure. “Since its launch, Indiegogo has not had a single case of fraud. But failure is not a fraud, and that happens,” he said.
Anticipating such changes in laws that limit small investor equity stakes, Wayne Mulligan founded Crowdability.com, a company with the purpose of educating retail investors.
“We aim to be the place an investor visits before making an investment decision,” Mulligan wrote on the company’s blog post. “Morningstar has done a great job building a place like this for mutual-fund investors. Our goal is to build the most trusted place for equity crowdfund investors”