[khaolak]

I'll try to help you understand the parent's point. The current environment of VC-backed companies is such that almost all companies in the tech startup ecosystem are following high-risk, high-reward paths.

Barber shops and restaurants tend not to do this - they follow low-risk, low-reward paths. One reason for this is how they are funded - a bank giving a business loan for a restaurant might want to see a conservative plan to make one restaurant profitable within a few months of opening, to maximize the likelihood that their loan is repaid.

If there was a VC backed restaurant with equity financing, they might instead try to grow rapidly to a thousand locations to try to displace/disrupt McDonalds, all while losing money for several years, in the hope that they end up a multi-billion dollar chain. Obviously this is much more likely to fail and be worth nothing.

By adding a new form of funding that sits between a business loan and a VC equity deal, the hope is that you also create a new space of business plans that are more aggressive than the single-restaurant with debt plan but less aggressive than the "try to take on McDonalds" plan.

[tptacek]

I understand the utility of that middle ground but not how equity crowdfunding provides it. The issue here is the failure rate for companies. Good companies fail routinely, and that includes companies that aren't on 100x trajectories. The high rate of failure requires higher returns from the winners. Accounting for realistic failure rates, I simply don't see how you can build a model that makes 2x returns from winners workable for outside investors.