Risks Associated with Crowdfunding

Fundraising with online crowdfunding platforms can be rewarding but there are risks and still many open questions.

Beyond the obvious concern of fraud or misleading information provided by companies, many believe the “wisdom of the crowd” in often highly technical, early stage businesses is flawed. Many believe without a “professional lead” investor doing due diligence and negotiating terms – the crowd should stay away.

Further, comparisons to crowd wisdom in large markets (public stock markets) are not applicable to the relatively limited number of investors in a crowd funded private business.

Proponents of crowdfunding argue Adam Smith’s “invisible hand” theory and experts often fail because they tend to think alike and do not benefit from the crowd’s diversity of opinions.

 

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Thanks, Ken

Ken Margolis | Managing Partner Castle Placement, LLC
1460 Broadway Street, Rte 400
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(212) 418-1188 | C: (516) 712-7784
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