Re:Micro VCs Are Coming
by bsder on Wednesday December 16, 2015 @05:12PM
(#10747758)
The problem is the legal system.
A single, large investor can sue, effectively, a corporation because they are on the same spending level. You need, roughly, a million dollars to sue a corporation.
A group of small investors have a VERY difficult time suing that same corporation. They have to be very unified, and, even then, it's very expensive. If the company is effectively burning up the money, it is very difficult to prove fraud and takes a very long time to do it. And your fighting your own investment which is paying the lawyers on the other side.
So, if you've invested, say, $50K, the company can basically run away with it and there is almost nothing cost-effective you can do. Even if you win, the company can go bankrupt--so your lawyer won't take things on contingency. Maybe you can interest the government in a securities or tax fraud case, but don't hold your breath.
Look at the problems with Kickstarter and the lack of ability to get your money back when things are, quite obvious, malfeasance. Those same problems hold until you start talking individual investments of almost 500K+.
Even worse, hucksters are VERY good at rooking people intentionally. I went through a case where a small group of us were showing the red flags all over the place (no financial statements, no board meetings, on, and on, etc.), and people still sided with the huckster.
The vast majority of people are dumber than you think.
A single, large investor can sue, effectively, a corporation because they are on the same spending level. You need, roughly, a million dollars to sue a corporation.
A group of small investors have a VERY difficult time suing that same corporation. They have to be very unified, and, even then, it's very expensive. If the company is effectively burning up the money, it is very difficult to prove fraud and takes a very long time to do it. And your fighting your own investment which is paying the lawyers on the other side.
So, if you've invested, say, $50K, the company can basically run away with it and there is almost nothing cost-effective you can do. Even if you win, the company can go bankrupt--so your lawyer won't take things on contingency. Maybe you can interest the government in a securities or tax fraud case, but don't hold your breath.
Look at the problems with Kickstarter and the lack of ability to get your money back when things are, quite obvious, malfeasance. Those same problems hold until you start talking individual investments of almost 500K+.
Even worse, hucksters are VERY good at rooking people intentionally. I went through a case where a small group of us were showing the red flags all over the place (no financial statements, no board meetings, on, and on, etc.), and people still sided with the huckster.
The vast majority of people are dumber than you think.