

Investment Crowdfunding is A Ghetto Stock Market - acremades
http://www.forbes.com/sites/cameronkeng/2013/03/17/investment-crowdfunding-is-a-ghetto-stock-market/

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girvo
Jesus H. Christ that article was terrible. I didn't realise Forbes let you
blog under their brand now. What a terrible way to dilute it...

Anyway. Kickstarter is not a "lay-away" or "presale" website.

    
    
      > It constantly boggles my mind that people are funding
      > projects on a platform or company on the internet that has
      > a policy of “No Refunds.”
    

Want to know why, mate? Because you're not "ordering" anything. The rewards
are an admittedly nice bonus; the real reason is to see something that you
wish existed come into being. To give products/creations a chance to be made,
that might not have the mass appeal that would be required to hit the
mainstream market.

Absolute crap.

    
    
      > Please let me know your thoughts!  If you think I’m wrong, then publicly 
      > flog me for my ignorance and I will fully accept the err in my ways.
    

Oh, and he's an arrogant S.O.B. too.

Apologies for the anger, everyone. This really pissed me off.

~~~
rdl
A lot of people genuinely treat Kickstarter for hardware projects as a pre-
sale website. He's wrong on other stuff, but on that point essentially right.

~~~
girvo
I guess that is somewhat true, however KS have deliberately attempted to move
away from that idea for hardware goods lately. Whether they've been successful
in doing so, I guess not.

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bsbechtel
The points made in the article may be legitimate (although the language is
somewhat sensationalistic), but if someone chooses to invest in these
companies, ignorant or not of the risks involved, they are the only ones who
are hurt. This is much better than only allowing Wall St investors who are
using other people's money and skimming significant commissions off the top to
do the same thing, costing retirees their pensions in the process. Eventually
people will learn, and most smart investors will stay away from sites such as
these. Many regulars to HN are excited about the JOBS act because it means
additional access to capital, but I think it also means more freedom in the
investment world, which means more closely tying the risks to the rewards of
investment, which seems to have been misplaced in the investment world today.

------
eth
The author's underlying point, that crowdfunding is not the godsend that many
think it to be, was lost in a poorly chosen post title and a poorly formulated
rant.

Simply put - investors via crowdfunding need to recognize the risk they are
assuming. Likewise, companies choosing to raise funding from non-accredited
investors need to recognize the costs and extra steps associated with IRS and
SEC compliance.

The author's "quick overview of basic problems that investment crowdfunding
faces", interestingly makes no mention of the implications of crowdfunding on
companies that would previously be deemed by professional investors as non-
fundable.

At this point, it's too early to write off crowd-funding simply as a bad idea
- especially without any inkling as to how the SEC even plans to address it.
Personally, I hope Mr. Kang ends up eating his hat. But time will tell...

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Eduardo3rd
Dropping the limit on income to become an early stage investor is bad
because... accountants are expensive?! There are a lot of reasons not to
crowdfund your startup, but this article misses all of the big ones.

I'd love to see a well written treatment of this topic once the new
regulations go into effect. Hopefully Forbes can find a better perspective on
the topic by then.

~~~
wmf
Agreed. Nobody expects startups to pay dividends, so that part of the article
seems like a red herring. I would hope that the same level of due diligence
that angels would perform today ends up getting done in the case of equity
crowdfunding.

I have a suspicion that equity crowdfunding will be the "funding of last
resort" (because it's "dumb money") and _that's_ why it will be a ghetto.

~~~
joewallin
exactly...whoever heard of startups paying dividends?!

------
dictum
Some people want to make small investments in new startups for the same reason
people play the lottery: there's a very small but real chance of winning
something.

It's not a margins game like buying stocks of big corporations in the stock
market in which you buy and hope it appreciates 20%, then sell it. It's buying
stocks with a 99,95% chance the business will tank in 2 years and you'll only
recover 5% of what you invested, but with 0,05% chance you'll get a 2000%
return on your investment.

Particularly, if I had money I wouldn't want to invest in a startup without
actually meeting the founders and seeing the company for a while, but if
people have the money and want to play with chances, more power to them.

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ballard
The lack of regulations makes crowdfunding simpler, riskier and generally more
awesome.

The trashy opinion piece assumes that people are not educated or "qualified
investors" enough to throw their dollars into something, like a European-
paternalistic view... this is fundamentally anti-capitalistic.

Regulations, through the use of lobbyists, serve incumbents whom which to
defend their business models with the durable advantage of higher fees, more
rules and more paperwork. They may also naturally be against anything which
would threaten their oligopolic hegemony.

Fodder for discussion: What are the risks of crowdfunding? Could the next
pebble-like project/startup not deliver, or is there enough pressure to assure
follow-through?

~~~
carbocation
> _Regulations, through the use of lobbyists, serve incumbents whom which to
> defend their business models with the durable advantage of higher fees, more
> rules and more paperwork. They may also naturally be against anything which
> would threaten their oligopolic hegemony._

You're talking about "regulations" but you're really describing regulatory
capture, which is the dark side of regulations. Regulations do actually serve
their desired purpose, sometimes.

~~~
hippobravo
The key is making sure that the regulated and the regulators are different
people.

Americans seem to believe that the best people to regulate corporations are
the lobbyists of those same corporations.

This would be a lot funnier if these same corporations weren't currently
guaranteeing that most major cities on earth will soon be flooded by the
oceans. The most important regulators on the planet have spoken: scientific
facts ain't real.

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niggler
Can we agree, as a community, that Forbes is linkbait and not up vote these
articles?

*funny, i wrote this three weeks ago (<https://news.ycombinator.com/item?id=5272564>)

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kevinpet
The best he can come up with is "the dividend paperwork will be a hassle"?
Can't we at least get people up in arms about adverse selection and lack of
information?

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keithvan
A very interesting way to use the word _ghetto_. I even had to google just to
make sure that it wasn't an obscure academic term, that the author wasn't
using ghetto in its slang form for an article headline for a _Forbes blog_.

    
    
      Think of it this way, a CPA audit is like using a condom 
      that you poked with a needle.
      In theory, it’ll protect you from most of your problems, but not really.
    

This also had to be one of the worst analogies I've ever read in regards to
the purpose of public accounting and audits. Audits are not to prevent fraud
-- they are to detect fraud and also give assurance. It is not a condom, it is
more like a medical check-up so you can tell the world that you are healthy.

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yeison
What a coincidence that the author of this article is the founder of "a
company that automates taxes for small & mid-size businesses." ( the quote
comes directly from his Forbes profile).

To me there is no doubt that the article was published intentionally and
solely for the purpose of promoting his business and the problems it is trying
to address.

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sas1ni69
Has to be the most elitist thing I've read in a while.

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DennisP
The JOBS Act actually raises the crowdfunded investment limits for companies
that submit to an audit. And it's worth mentioning that Europeans can make
these sorts of investments already, they don't have our "accredited investor"
restrictions. They seem to do all right.

Complaining about an early-stage startup not paying dividends is just silly.

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anonymousab
And that's what makes it great. Crowdfund a videogame or product and the dev
screws up? Or runs away with the money?

Even if they "escape", their reputation is obliterated.

The threat of that notoriety seems to be a good replacement for investor
overbearance so far.

~~~
wmf
Not necessarily. Remember, "Silicon Valley celebrates failure".

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hkmurakami
I didn't know you were allowed to use "bareback" in (supposedly) legit
journalism

~~~
olefoo
It's definitely appropriate if you're talking about the practice itself;
slightly less so if you're using it metaphorically. But you know what? The
boundaries of what's appropriate and not are culturally constructed, you
should be able to use the word "belgium" in a serious screenplay if the intent
is artistic enough.

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flyinRyan
How can anyone not see that Crowdfunding will be the future one way or
another. Why let some out of touch VCs pick who gets to play when you can ask
your potential customers?

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rdl
I initially assumed "Ghetto Stock Market" meant "a stock market which allowed
participation by or restricted participation to Jews", which really made no
sense.

~~~
mkr-hn
Ghetto means something different (but similar) now:
<http://www.urbandictionary.com/define.php?term=ghetto>

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olh
New socioeconomic dynamics: too much for some brains.

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joewallin
Flashy headline; but piece was just not substantively there....

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wissler
Heaven forbid that the mere peons have some kind of freedom in investing and
creating things. We neo-feudalists can't have that now can we.

~~~
hippobravo
If Wall Street doesn't get a cut, it's an immoral business practice!

By bypassing Wall Street, you're actually stealing profit from the too-big-to-
fail investment banks. This threatens those banks with failure, and their
failure will result in a crash of the global economy and require another
bailout by the taxpayers. Therefore engaging in crowd funding is a threat to
America and clearly a form of economic terrorism.

