Bad news for IndieGoGo and other startups that want to be allowed to solicit up to $1 million in investment from the crowd. The bill that would allow companies to ask openly for investments in installments of just $1,000 or less has slowed down in the Senate over concerns with the protection of small-time investors. The bill, introduced by Massachussetts senator, the Libertarian-leaning Scott Brown, is being targeted by groups like the North American Securities Administrators Association Inc., which says the bill would promote the fleecing of unsavvy investors.
Proponents say social media ensures that scammers will be outed in short order.
If the history of Kickstarter is any indication, crowd funders don’t always get what they expect and, less charitably, are easily duped. Diaspora, one of the most overfunded projects in the site’s history, is stalling out; the cofounders of the popular eco-sandals Vere overpromised and are months late on their promises to backers. In other cases, there is suspicion of outright fraud on the part of project creators. If you have a half-baked idea, a professional-looking video and a sincere letter, your project can easily raise a few thousand dollars or a few hundred thousand.
The bill, its companion in the House, and another similar proposal from an Oregon senator are popular because of the perceived ability to create jobs by empowering small-time entrepreneurs.