Discussion on:

Why crowdfunding can be a terrible investment

A real story would be When Crowdfunding Goes Right... and just hope that the people you're funding aren't:

Dreamers who don't produce.
Scam artists.
OWS types who preach loan forgiveness.

Some people hate venture capitalists... I guess they never need to raise money for a legitimate business.

I spent 40 years dealing and not dealing with VC's on various biotechnology projects. Like every other profession there are those that do it well, and those who are totally incompetent. We constantly run into to VC's overburdened with new MBA's tattooed with the latest financial software, who don't have a real clue, sufficient background to see those who do - about the technical workings of the businesses they are steering investors into - or away from. As venture capitalist have blossomed in recent decades the number of incompetents have grown disproportionately to their totals - and their lack of success rates show it. All in all, people have good reasons "hating" their individual incompetence and being skeptical of them unless their consistent successful performance has proven otherwise. In addition VC's only want to invest in mature and already profitable businesses (formerly the bankers domain) few are funding start-ups. That has left a huge gap in business development and our (US) current economic status is proof of the lack of economic seeding that has taken place in recent decades. Crowd funding is evolving, eventually it will involve right back to small investors funding start-ups, just as they did before the US gov./SEC killed that process. Nothing matures any investor like being accurately able to access real risk to an enterprise. Making risk taking illegal, hurts both the investor's development process and the entrepreneurs ability to build businesses.

I launched LumenCache after two unsuccessful Crowdfunding attempts. Kickstarter declined it 3 times and Indiegogo campaign was lackluster (I did get an entire Spa chain from it though!) It was also a good networking tool as I met a developer who is interested in making compatible products on the LumenCache platform. Best part of Crowdfunding campaigns is the free viral Press.

I have been talking my head off about this concept for years.
It was very much akin to peeing in the wind.
Really pleased that "distinctav" made it a successful venture.

Even if it "went right" I still think the concept needs work.

999 out of 1000 projects are going to fail. They won't get done, some roadblock will be encountered. Or it will get done and someone else will have already produced it cheaper. I saw this happen with the "Android TV" idea. The crowdsourcing...uh, crowd...was touting this "really cool idea" of an Android TV stick for $200. Meanwhile, everyone and his brother started selling them for $69 on Amazon!

Don't get me wrong. Those are just the problems of work and business in general, not just crowdsourcing. I believe that the one thing that will solve our Recession and unemployment is ready access to capital...however, what people really need is the democritization of the big money so anyone can just go and get see money even without "the crowd" standing by. In return, the few winners will return profit to the pool -- just like in typical investment venture capital.

So many more people could be working on independent ideas and businesses. Even if most fail they will advance technology, keep people employed and off the welfare lines...

FWIW in wikipedia they claim a success rate of 42 to 46% but of course that only means that the money was raised. A project can, I think, be considered a success if it's investors get what they were promised. Whether it actually takes off after that is another thing. It would be interesting to see those statistics but cannot find them, I guess that's more difficult to pin down...

A good idea? Yes.
An investment? Well, if you think buying a house or car or camera is an investment...you're wrong, and neither are most Kickstarter projects.

Even if they were, the essence of 'investment' is to get back more than you put in...that may not be money. But it always means risk. The downside is that you may get less than nothing back. Losing is always possible.

Keeping your money in money is risky...money is revaluated constantly.

Putting you money into education is risky...a lot of jobs that were good jobs a few years ago aren't even jobs. A trend which will continue by all signs.

The 'king' of investments, real estate has both made and lost fortunes. 'Location^3' includes location in time as well as space as well as society.

A company dying of 'too much of a good thing' isn't all that unusual. Many companies have aggressively pursued business which they were unable to fulfill...it's one of the prime things you look at when finding a new supplier.

Live is not now, has not to anyone's knowledge, and almost certainly never will be free of risk. Risk will get you no matter what. It's risky to enter, much less use, your bathroom. In fact, your bathroom is more of threat than terrorist attack, and having the governments eliminate the purchasing value of your money is one of the highest risks of all...near certain over any long time period.

The first rule in investment is not to place anything you cannot afford to lose at high risk. Some risks, have no precedent, and thus are unknown.

Some seem just weird. Buying up Confederate States of America currency after the Civil War would be insane...but after a hundred years, the value is better than our Federal Reserve Notes.

When nostalgia for the 50's hit, suddenly those old throw-away fast food kid toys became valuable (almost entirely because most had been tossed.) That started a mini-trend in collecting similar junk in the present--only a lot more of the stuff is made these days, and there's no way to know if any of it will be of value in the future.

Modern life has different risks which require different strategies and tactics than Cro-magnan man, but in the end, you die. Whining about it, even attempting to make things 'safer' has limited effect.

When adding safety factors to a system, you will rapidly reach a point at which adding one more 'safety' feature actually increases the likelihood of systems failure.

Whenever you expend resources, money, time, energy, thought, there is risk that you will waste them if in no other way than while you were watching TV, something that you had considered doing pays off for someone in a big way.

When you buy a product, the price may come down before you even get it in your hands. More commonly, after you buy something, you will see some other vendor selling the same item at much lower cost.

**** happens. Adapt or die.

Sorry,
I meant this as a comment for the article - not as a reply to wizoddg's comment.

Here's an article looking at negative effects of the JOBS act.
"SEC uses JOBS Act to set up new roadblocks to crowdfunding"
http://venturebeat.com/2012/08/31/sec-uses-jobs-act-to-set-up-new-roadblocks-to-crowdfunding/

The JOBS Act, the law that allows companies to raise capital via crowdfunding for the first time, is appearing more and more in the news. Many people, rather than looking forward to raising capital, are instead raising alarms: it would take crowdfunding investors many decades to lose the $5.8 billion that JP Morgan lost in two months. I write about this in my new book: The JOBS Act: Crowdfunding for Small Businesses and Startups.
http://www.amazon.com/The-JOBS-Act-Crowdfunding-Businesses/dp/143024755X

Also see our crowdfunding webinar: jobsact.eventbrite.com.