Myth: Crowdinvesting will invite and encourage fraud.
Reality: Fraud and more specifically investment fraud existed way before crowdinvesting became a hot topic of discussion. Unfortunately, it will continue to exist. There are regulations in place to protect investors, both the sophisticated and unsophisticated investors alike, yet it’s not always so easy to avoid investment fraud. Once crowdinvesting becomes mainstream and the supposedly “unsophisticated” investors begin having access to investment opportunities through crowdinvesting platforms, there will always be those who will claim that opening these opportunities to such investors will invite and encourage more investment fraud.
We strongly disagree. Technology has changed the way we gather information to make daily choices. There have been sites and features built around this change, and we see it every day through sites like Quora, Yelp, Amazon, and many others. Similarly, the public forum that is provided by crowdinvesting platforms for investors and startups will allow any issues that may otherwise be overlooked by an individual investor to be identified. As we mentioned in previous blog entries, the power of the crowd comes in many forms. And specifically for investment fraud as it relates to crowdinvesting, the interested investors and their ability to ask the relevant questions will be crucial in detecting fraudulent opportunities. Crowdinvesting will allow the investor community to share relevant information during the diligence process.
Our two cents: Crowdinvesting platforms like Return on Change will do our best to have startups provide the essential information around their capital raise, but that will not always be enough. As with any investment decision, it is important for investors to do their own due diligence and ask the smart questions (which we encourage!). A combination of common sense, diligence information provided through the crowdinvestment platform, questions provided by the investors and the responses provided by the entrepreneurs will go a long way in helping you make an informed decision.