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by somic 4081 days ago
FWIW, personally I am not optimistic about this but would love to be proven wrong.

Information asymmetry, risk mismanagement, chasing quick riches, etc - too many reasons imho why startups are not a viable asset class for most people.
2 comments
mooreds 4081 days ago
Don't forget, this law doesn't let people bet their life savings on a whim. From the article:

"The new law eases the process of raising that first $1 million by letting people ask their neighbors for up to $5,000. While companies must inform investors of the risk and provide quarterly reports, they can skip the audit and other expenses typically needed to attract investors."

So, it is $5k at a time. The main difference between this and the normal "friends and family financing" is that it can be a larger number of less connected investors and the company needs to provide reports.

Being a member of an investment club (and being surprised at the lack of uptake), I'll be interested to see whether or not the investments allowed by this law are worth entrepreneurs' time.

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somic 4081 days ago
I hope you are right and I hope it works out but I am skeptical.

I will give you a simple example. If you get a random sample of people in the US, I am afraid more than 90% of them won't even understand that investing 5K in a neighbor's kid's shiny new startup is not a binary proposition (invest or don't invest); one actually is buying N of something (shares, options, warrants, etc) for those 5K, with all sorts of properties like seniority, etc, etc, etc.

Regular people can understand a loan - I give a neighbor's kid 5K and get back 5K+3% in 1 year. But equity-based investment is significantly harder to grasp.

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vonklaus 4081 days ago
Damn, I thought I was cynical. You think that 90% of the US population couldn't be made to understand equity investment?
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davidw 4080 days ago
There are certainly downsides, but people can already piss their money away in many, many ways. Gambling, drink, risky stocks, buying junk that they don't need.

I think in this case I'd think it should be up to individuals to determine how they use their money.

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