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Crowdfunding nukes VC's downside protection. VC funds invest through preferred stock or convertible debt for its downside-protection features. If that downside protection comes at the expense of unaccredited investors, the risk that one of them sues or a regulator gets involved on their behalf goes up. That could easily neutralise or even outweigh the benefits of the protection.

This isn't limited to crowdfunding, by the way. A cap table of a hundred $10,000 cheques (I've seen these), even if all are from accredited investors, will have a harder time raising venture capital than one with a handful of early backers.




> A cap table of a hundred $10,000 cheques (I've seen these), even if all are from accredited investors, will have a harder time raising venture capital than one with a handful of early backers.

Hundreds?!?


Doesn't sound impossible to me. I was involved with a company at one point that routinely hit its customers up for small-time investment. Never saw the cap table, but I'm sure it was loooooong.

(I originally wrote "doesn't sound crazy," but in fact it sounds totally crazy. Just not impossible.)




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