Crowd-funding

Crowd-funding is essentially charity aimed at would-be entrepreneurs. In exchange for a copy of the company’s future products a backer gives cash to the entrepreneur. The only benefit to the benefactor, apart from the promise of a future prototype, is a little kudos. This model will lose its shine pretty quickly.

Changing laws to make equity investments possible via crowd funding will make things worse since, as an asset class, crowd-funding is absolutely guaranteed to be loss making. There will be a few winners and a long tail of losers. Committed investors will regress to the mean and lose money just as surely as if they were playing the pokies. Any asset class that doesn’t cumulatively return enough profit (risk-adjusted) will ultimately fail.