With all the time and attention that fraud has received, we wanted to talk about a much more important issue, failure. Failure of early businesses happens 50% of the time – that’s just a fact of nature. If we were to hold that fraud would happen 1% of the time, then failure is 50 times more important in risk mitigation for investors. And nearly all Americans who invest in the public markets already mitigate against the risk of “losing it all” by way of holding a portfolio. Diversification has been practiced for centuries, and it’s no different in any asset class, be it public equities, commodities or crowdfund investing.
We believe that prudent risk and fraud mitigation currently in HR2930, along with law enforcement provisions in the bill preserve the power of state and federal officials to aggressively pursue those who commit fraud. Now, let’s create a plan to help more honest businesses succeed.
KNOWLEDGE & EXPERIENCE
When entrepreneurs talk about failure they talk about the lessons they learned and the experience they gained which is less sexy to the media than fraud. In crowdfund investing, the entrepreneur has access to his investors to gain knowledge and experience from them in order to attempt to reduce the rate of failure. The transparency and ease of many to many communication benefits all.
When investors talk about a stock’s failure, they always focus on the critical importance of diversification. WHY? Because everyone knows, a diversified portfolio is the best security against loss. Why focus on educating people about portfolio diversification when it is easier to claim crowdfund investing will open the floodgates to fraud?
So why do we bring this up? Because the opponents want you to focus on something that will grab the media’s attention (fraud). This also distracts the debate while trying to prevent regular Americans from supporting entrepreneurs with their own dollars.
There are entrenched interests that don’t want you to focus on how getting capital to entrepreneurs will stimulate innovation. They clearly don’t talk about alternative solutions. AND most importantly they don’t want to lose jurisdiction over the business and revenue they are currently generating. These are areas we hope the media starts to look into more fully.
Much of our new information economy is based on new ways of connecting people. Preventing entrepreneurs from soliciting financing from their fans and potential customer base, equates to a massive form of economic suppression. And it’s a suppression of the most powerful human right ever given, the 1st Amendment.
If the opponents took the time to think it through, they’d see that fraud is no more of an issue than in other forms of investing. With prudent safeguards in place, let’s focus the majority of our energy on the real issues – continued education about diversification.
Think we are wrong? Please tell us why. How does one “lose it all” when holding a portfolio of businesses? How does suppressing platforms which will drive Yelp-like crowdsourced checking & reviews of entrepreneurs help prevent fraud?