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Information Asymmetry in Crowdfunding

Investment crowdfunding is the first time that the average investor has to perform diligence and asses risks on a startup rather than an established company that they are used to investing in via the public markets. The risks involved in these investments are much different. Many of these investors are looking at what product or service is going to be the next big thing when really they don’t take into consideration the more valuable aspects for a startup to be successful which is management team, traction, competition, and scalability. The problem with startups raising funds under Reg. CF is that there is a lack of information on the company for investors to research before they make an investment. The core information will come from the deal info on the funding portal (which is really just a sales pitch) and the offering statement which is a long document that can intimidate and disinterest the average investor. So now that the availability to raise funds has been democratized, how do we create an equal playing field when it comes to making informed investment decision via equity/debt crowdfunding? In my opinion, company information and investment research is something that should also be crowd sourced and made available for investors so they can, together, find and invest in viable companies. Funding portals perform some diligence on the companies that they host on their platform, however, they have alternative incentives to host companies on these platforms, and they themselves are not investing. It is up to the investor to perform the right diligence to make informed decisions. An aggregation of crowdfunding deals along with individual investment analysis from the “crowd” is made available via Crowd Lustro to solve some of these inefficiencies and help non-accredited investors that are new to this style investing make informed, risk assessed decisions together.
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