“Bad Actors” The Biggest Threat to Crowdfunding

So-called bad actors may be the biggest threat to crowdfunding—but otherwise, capital sourced through crowdfunding has the potential be a major capital source. However, as it becomes easier to start an offering—thanks to new regulations from the SEC—inexperienced or even malicious crowdfunders may have the potential to disrupt the market.

“The industry is so new, and it just seems to be growing and growing,” Matt Schuberg, co-founder and CEO of RealCap, tells GlobeSt.com. The only thing that I see might stand in the way of that might be some bad actors that would have a negative impact on the market. I think that is something that should be short term. I am hoping that the SEC doesn't come down with too many regulations if something like that doesn't happen. I don't think that the industry is going anywhere and I think that as more people understand it, there will be more interest, especially as there is more Reg A offerings and options for non-accredited investors.

The public is still not educated about crowdfunding, and that could make it easier for predators to enter the sector. Schuberg says that a lot of conversations with potential investors are focused on education, and different crowdfunding platforms are coming together to do just that. “We are still having that conversation. We definitely want to explain how crowdfunding works, and there is still a large majority of the population that is just getting into it,” he says. “It has only been around five years or so, and it is still new. The general consensus is that there is still a long way to go. Rather than competing with other platforms, I think it is more beneficial to spread the word.”

There are still concerns about bad apples, and Schuberg believes that it is inevitable, sooner or later. There are already some investment markets where it is happening.

“It is getting easier to start an offering, and we are going to see people that don't have any real experience misleading or getting investors to sign on when they don't really know what they are doing,” he explains. “I think it is happening in the crypto currency sector as well with ICOs. I think it will be hard to avoid.”

The solution will fall on regulators' shoulders. “We are hoping that regulators are more proactive rather than reactive and setting boundaries before those things happen to minimize damage,” says Schuberg.