June 28, 2012
I am a private capital investor, and I have numerous clients who also invest in private companies. (Angel Investors)
Many of us believe the crowd-funding section of the JOBS act will have a reverse impact from its intended purpose (i.e. Less private investment in start-ups, not more).
The reason is this... If a company comes to me after it has already raised some funds via crowd-funding, and then they ask me for additional angel / private capital investment, I will likely NOT invest, soley because they went through a crowd-funding round first. The risks associated with co-investing next to these these "crowd-sourced" investors is not worth it. I am not about to invest large sums of money into a company that has hundreds or thousands of small $50 investors. And, I'm not about to perform due diligence to insure those investments were properly documented, or adequately subordinated.
Companies who attempt to crowd-fund as their first fundraising source will permanently scare any future investors (like me) from investing larger sums of money later. They will become lepers for private capital attraction.