If you are a passive investor what you would do is invest in all the crowdfunded investments available or a large number at least and then hope to beat the S&P 500. It might make sense to apply some basic fitness criteria for inclusion, but what those criteria should be is a good question.
Having more things to invest in is good, but I am going to hold off for five years or so until the mechanics for how to successfully participate have been figured out. Then I have to figure out how I am going to get access from retirement accounts. Hopefully this gets turned into an ETF or a mutual fund, but then the question would be how this differs from publicly traded securities.
Even then... how much of your investment money would you want to put into an asset class that doesn't have a decades of history. When things go south will you have the fortitude to stay the course or will you realize your losses and pull out because you don't know what to expect?
Equity crowdfunding for the general public should be a good idea, but unfortunately I'm afraid it's not. The asshole to elbow ratio is just too low. I'm deeply concerned that the entire seed stage market is about to get shat upon rather copiously. The frauds will actually drown out the good deals, since they'll almost by definition be better at flash and promotion.
A lot of people are really naive about this stuff. Organized crime will likely get involved. It will not be pretty. But hey, those companies that make flashy startup intro videos are about to do a lot of business.
Just as there are sure to be well publicized stories about people getting fleeced -- there will be stories about other people getting rich.
Yes, there will be scams. And there will be successes.
The main companies who stand to really benefit from this are those that cannot raise cash from tradition institutional investor. And companies that cannot raise money from tradition institutional investor don't have the best track record.
Two main reasons:
1. Control: Traditional investors want power. Board seats. Founders like Zuck who want to retain control would be able to do it if they funded via the crowd. Right now he has (rare) voting control but if he had funded via the crowd he could have had 100% control. Every single board seat.
2. Leverage: If they wanted VC money for their advice and connections etc -- but they didn't want to give up the aforementioned control, they could use crowdfunding (or the threat of crowdfunding) as leverage. This leverage could also be applied to deal terms like amount raised, valuation etc. Competition is great for negotiations.
This is a good BATNA for even the best startups, so it's going to drive up valuations across the board.
As much as I find the idea of crowd funding an interesting, potentially innovative idea that should likely be allowed, I cannot see a situation where it doesn't end up creating literally the exact same scenario as unregulated penny-stocks.
A huge slough of shit companies who can't get funding from respectable investors and then proceed to aggressively pursue the average joe with 10k in the bank to invest a few grand "in the next big thing!"
Someone please tell me how I'm wrong.