| Cofounder of Wefunder here. I disagree with the author. He makes a few assumptions that I believe to be false and makes a strong conclusion that crowdinvesting as a whole is doomed to low quality startups. Some points of disagreement: - Startups choose either crowd-funding -or- VC. It's not VC or crowd. Nor is it angel or crowd. High quality startups can raise traditional seed rounds and allocate a slice of that round for a crowd of investors. One example is Zenefits (YC W13), which is an awesome company that's kicking ass (IMO). They raised part of their round on Wefunder even though they had tons of investor interest after Demo Day. - The author assumes the investor selection will be inherently poor with crowd-funding. I disagree with this, too. The universe of great investors isn't a subset of investors active enough to angel invest. Imagine being an API company and having 50 developer-investors. Plus, crowdinvesting platforms allow investors to invest smaller amounts in many companies. Imagine investing $5k in 20 of your favorite YC companies. Good luck trying to get one-on-one meetings for $5k checks. Especially if you don't live in San Francisco. - The author assumes that raising from a crowd means you'll have to wrangle thousands of investors. It doesn't have to be that way, especially with the common practice of using LLCs to group many small investors into one item on your cap table. - I do agree with the author that too much adverse selection can create a marketplace for lemons. I worry about that all the time. However I think we do a pretty good job of mitigating that. There will absolutely be a lot of mediocre crowdinvesting platforms and companies trying to raise on them, but it doesn't mean the whole industry is doomed. I encourage the author to check us out in a month once the general solicitation ban is lifted and reconsider his view of crowdfunding as an asset class. :) |
I think Zenefits is an awesome company as well. With regards to allocating a slice to the crowd, I don't know how often that will happen. At least for me personally, if I commit to invest, I typically want to invest as much as possible (trying to learn from Buffett). That would likely mean that if I was investing in a round I would prefer that no slice is allocated to non-value add investors. Could certainly debate whether or not the "crowd" is a value-add investor.