Comment by patio11 | Hacker News Reader

Comment by patio11 | Hacker News Reader

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It's certainly more dangerous than investing in IBM or Chipotle, but not obviously more dangerous than a number of things which we let adults purchase, including casino chips, time share properties, houses in California (which we'll subsidize your 5X leverage on), art history degrees (where capping it at 5X leverage would be refreshingly conservative), etc etc.

A $3,000 computer purchased today will depreciate to zero in 3~4 years, leaving you with hopefully some happy memories and a paperweight. Three $1k crowdfunding investments may do likewise. Do we distinguish them because they don't guarantee the paperweight?

I get the social purpose of e.g. preventing boiler room operations from extracting "investments" by retirees into businesses which are not actual businesses, but for businesses which are actual businesses which just happen to have 90% failure rates, "Distribute the risk among a group of people guaranteed to be at least middle class; and cap it at a figure lower than what they could reasonably spend on e.g. a wedding dress" seems to capture most of the social benefits of outlawing outright scams while also not outlawing middle class people from owning startup shares other than those they receive as compensation for services rendered.

Normal people don't buy computers because they anticipate the returns will help fund their retirements.

Exactly this. This was what was sad about the dot com bust. People would not listen when I tried to explain that most of the companies they were putting their retirement funds into would die, and take their funds with it.

I did, for exactly that reason. And I'm guessing just about everyone else on HN did, too :)

It's a good point, though. "Normal" people should be protected against themselves in their financial decisions.

But I can't crowdfund if I don't buy a computer...

Nor should any normal retail investor purchase crowd-funded equity for retirement purposes. These are risky bets on immature companies with unproven products & business models and unvetted financials. I'm fairly certain that the majority of retail investors who are looking to put their money into crowd-funded equity will understand the higher risk associated with this new asset class.

I can't see any reason to accept the premise that equity crowdfunding investors are sophisticated. The entire point of deregulating equity --- which is what equity crowdfunding is --- is to allow unsophisticated investors to invest.

An unsophisticated investor can deduce that the risk profile of Coke is much different than that of a company with a penny stock trading at $0.05. Likewise, the majority of "unsophisticated" investors can probably deduce the difference in risk between investing in <bluechip> and <startup>. But we can't know for certain without conducting some kind of survey of the demographics and level of sophistication of the retail investor population.

As someone else pointed out - the SEC should be protecting investors/general public from unethical and illegal acts by the businesses, not from themselves and their own lack of knowledge. If you don't know what you're doing, you probably shouldn't be investing in the first place. Put your money in an ETF/savings account and only gamble what you're willing to lose in the equity crowdfunding market.

You can already do this. What startups want to do is market investments without dealing with public company disclosures, or the stigma of being an OTC public company.

Yeah, the computer one was maybe not the best example... but there were plenty of other examples to illustrate the point.

No, but plenty of people (stupidly) gamble at a casino and hope for returns to fund their retirement, and no one is clamoring to outlaw gambling.

To expand on this analogy - gambling is legal because, as a society, we've decided that the upside of "entertainment value" outweighs the downside of "unsophisticated 'investors' (gamblers) may lose more money than they can afford to." If this is the case, it seems obvious to me that we should also accept crowdfunding, which has exactly the same downside, but infinitely more valuable upsides: normal investors get more opportunities for investment and businesses get access to more capital.

Securities regulations should protect investors from shady businesses doing illegal things, not from themselves.

Many, many, many people are clamoring to outlaw gambling in the very, very few places it is currently legal, myself included. Right now Draftkings and whatever that other one is are in the process of getting worked over by multiple state AGs for violating anti-gambling prohibitions.

Gambling is legal in only a tiny handful of places and in the few places where more casinos have recently been authorized, NY state (my state) included, it has been a hugely controversial decision. In NY State, the rationale was certainly not that gamblers benefitted, but that the added tourist attraction of creating casinos in depressed communities will boost the local economy. I think this was a patently bad decision and I'm certain that history will bear me out, that the local economies will not suddenly prosperous and quite to the contrary, all of the low grade crime associated with risk seekers, substance abusers and the profligate will now infect these communities as well.

The whole reason we have the SEC in the first place is to protect the credulous from the sharks.

I don't anticipate this type of crowdfunding taking off, quite honestly, and I don't know that this is a problem. We want the middle classes putting their assets in places safer than just betting them on papa's mustache in the third - which is what unsophisticated startup investing basically is. Except there is a much greater chance that a random horse picked with a dartboard is going to have a return than a random startup will.

I really don't think we need to concede the equivalence between restricting equity crowdfunding and outlawing gambling. Gambling is legal because, as marketed, it's an entertainment product. Equity crowdfunding is restricted because it's an investment product.

Similarly, GNC can sell all sorts of useless nutritional supplements, but the FDA is all up in the business of anyone trying to sell a new medication.

Reminder: you can take money from non-accredited investors; it's just so complicated that it's not practical to do so at scale and with strangers.

> Reminder: you can take money from non-accredited investors

My understanding is that it's only legal if investors approach you, or if you solicit individual investors on a one-by-one basis. It's illegal to simply announce that you're publicly accepting investment. I wholeheartedly agree that the marketing of these types of offerings need to be tightly regulated, but as it stands today, it's effectively impossible to participate (as an investor) without having a personal connection to the business.

That's correct, and what I mean about it being difficult to accept non-accredited money at scale. Which is the difference between being able to invest, and being able to market an investment.

So, let's say I market the crowdfunding shares as an entertainment product. Then it could become a legal model?

Relatedly, I had the idea to sell small shares of (legit, regulated) far-out-of-the-money options as lottery tickets. As investment products, they're legal, but work like lottery tickets in that you have a tiny chance of winning big (e.g. if the underlying security has a sudden, sharp shift in price).

Yes. That is, for instance, how Kickstarter works.

> No, but plenty of people (stupidly) gamble at a casino and hope for returns to fund their retirement, and no one is clamoring to outlaw gambling.

Many of the games at a casino are required by law to payout at a certain rate, though.

>A $3,000 computer purchased today will depreciate to zero in 3~4 years, leaving you with hopefully some happy memories and a paperweight.

My desktop contains many parts manufactured more than four years ago and it is still useful. In fact, it no longer matters how many dollars of value you think it is worth, it is still effective, consuming only electricity and my time.

Your thesis is incorrect.

I sold my four year old $1200 pc for $200 so yeah he's definitely wrong.

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