The problem with crowdfunding

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The euphoria building over the possibilities that crowd funding will have on small businesses is premature. All of the media hype seems to be centered on the cash recipient; the business that will benefit from increased availability of funds. But what about the funders? Without investors, there is no cloud funding market. So far, I see no convincing evidence that any significant growth in the source of funds. Unless the market atttracts more investors, crowd funding is doomed.

I don’t mean to say that investors won’t come eventually but rather, so far, I see no support for this. Two significant and perhaps ignored facts are that the large majority of investable funds are owned by older individuals (or organizations controlled by older individuals) and that these owners rely on hired advice to manage those funds. On the flip side, relatively few young tech-savvy individuals have money to invest. So this means that the crowd funding industry has yet to convince the mass of older, wealthier and less tech-savvy owners of investment capital that this new market presents possibilities that exceed the risk/reward frontier of current investment choices.

As it stands today, any CPA or investment adviser can make a strong case showing why other existing investment choices mathematically and logically exceed the risk/reward possibiliites offered through crowd funding markets. We still have quite a while to go before crowd funding can be declared a game-changer for small businesses.

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