Whatever Happened To The "Crowd" In Crowdfunding?

Daniel Gorfine | Washington Monthly | July 23, 2013

The Securities and Exchange Commission recently generated a buzz in the investment world when it voted to lift a nearly 80 year-old ban on advertising private debt and equity offerings to the general public. The SEC voted to allow “general solicitation” so long as the ultimate buyers are “accredited investors” wealthy enough in the SEC’s eyes to be presumed sophisticated and capable of withstanding investment losses.

Starting this September, start-up companies, small businesses, and even hedge funds or private equity firms will be able to advertise investment opportunities publicly, including through internet ads, Facebook, and Twitter. Many companies will also likely rely on web-based investment platforms that will help to advertise offerings, verify the “accredited status” of investors, and facilitate standardized stock and bond sales. In theory, the result should be greater and more efficient access to capital for cash-starved start-ups and new investment opportunities for investors.

If this sounds like what “crowdfunding” was meant to do for the general public, you’re right—except the missing ingredient is the “crowd.”