Loomio
Fri 21 Mar 2014

Crowdfunding legislation

DS
Danyl Strype Public Seen by 32

The government is passing a law which is allows companies to raise up to $2million in investment, and return financial rewards to investors, without any of the usual formalities like issuing a formal prospectus:
http://blog.pledgeme.co.nz/this-is-not-an-april-fools-joke-crowdfunding-moves-into-equity/

Is this something Pirates should support, as an overdue digitization and democratization of investment? Or should we oppose it as an attempt to use the feelgood image of "crowdfunding" as an excuse to further deregulate the out-of-control finance industry and remove essential checks and balances?

DP

David Peterson Fri 21 Mar 2014

I posted about this on Facebook to the pirates group back when this first became news, because this freaking awesome, and is exactly an example of technology bringing people closer together which we should embrace (and government should not be blocking).

DU

[deactivated account] Thu 27 Mar 2014

Have used kickstarter once before to get an Ouya console. I feel that this is something we should support, as with the exception of Oculus Rift (now part of Facebook), crowdfunding usually leads to good things being made.

AR

Andrew Reitemeyer Thu 27 Mar 2014

Crowd funding is a good thing. It should be unrestricted with in the normal laws surrounding fraud.

DS

Danyl Strype Thu 27 Mar 2014

This is the problem though. This law is not about the kind of crowdfunding @andrewmcpherson is talking about, it weakens some of the normal laws surrounding fraud - for example those requiring a registered prospectus for those looking to invest their money - then openwashes that by calling it "crowdfunding". I find this deceitful, and I think the PP should be criticizing it as such.

DU

[deactivated account] Fri 28 Mar 2014

I think that a prospectus can actually be detrimental to the environment, as well as small scale investor dividends. I know for a fact that most prospectus cost more to print every year than the dividends of the average shareholder return. (No, I am talking about typical people, not the 1% which @davidpeterson will eventually bleat about.)

AR

Andrew Reitemeyer Sat 29 Mar 2014

It is investment and not a donation against a token gift- that is clear. In a country that promotes gambling like we do crowdfunding is a way for some people to switch and learn to estimate risk properly. If it turns out to be a way just to sell what would have been normal stock market shares in a deregulated market then criticism would be in order.

DU

[deactivated account] Sun 30 Mar 2014

Realistically, if the investment is less than what I'd want to spend on a computer, then I think I'd be able to assess the risk and manage it better without a major breakdown of all the pros and cons according to the prospectus.

DS

Danyl Strype Mon 31 Mar 2014

There is no reason a registered prospectus couldn't be online, instead of printed. so I think @andrewmcpherson is now greenwashing this possible openwashing ;)

However, I'll admit to a fairly limited knowledge of how investment, equity, shares, the stockmarket etc all works. If some of you have had a good look at this new kind of "crowdfunding" and you can explain why you think it's legit, I'll take your word for it. I just don't want to see us being useful idiots, and supporting things uncritically just because they use buzzwords we have positive associations with.

AR

Andrew Reitemeyer Mon 31 Mar 2014

We could develop a "code of conduct" for crowdfunded enterprises. For example; call for transparency before and after achieving the funding goal. Scientific projects should release research results as open data. Art projects be released under creative commons licenses.
Not high priority but we would be doing something positive for a change.

DU

[deactivated account] Sun 6 Apr 2014

I would stress that the costs of a formal prospectus are more in line with projects costing over $2 Million in investment. To that end, the proposed business would be wasting investors money on a prospectus that would be better spent on a business plan outline for investors of the type usually provided on crowdfunding projects webpage.

  1. @andrewreitemeyer I would suggest that we should not impose regulations that may be premature, as if the entire information about a business plan is outlined to all before investment there is nothing to prevent competitors taking the plan and the investment opportunity away.
AR

Andrew Reitemeyer Sun 6 Apr 2014

@andrewmcpherson If that is the case they would be better going to VCs or Angels

DS

Danyl Strype Fri 11 Apr 2014

@andrewmcpherson the whole point of crowdfunding, as currently practiced, is to put an idea out to the world, and invite people to help make it happen by donating cash (or in this case of this legislation investing it). Are you seriously suggesting that someone should be able to solicit up to $2 million from the public for an “investment” without regulation? Surely people deserve to have their savings protected from ponzi schemes and other scams.

I know of a number of crowdfunding campaigns for things which sounded like a really good idea, but the people who got the money never really followed through on what they promised. Sophie Novack of “Open Source Permaculture” disappeared with thousands of dollars crowdfunded on IndieGoGo, and the work she promised never appeared. The Diaspora group promised P2P software with all the functionality of FB, and all we got was a retarted Twitter clone that wasn’t even as good as the already existing StatusNet. At least in this case, nobody was expecting to get their money back, so the risk is not high. When these kind of campaigns become "investments" with a promise of returning the money, maybe even with a dividend, the risk becomes exactly the same as investing in any business, and needs to be carefully regulated to protect the public from scams.

DU

[deactivated account] Fri 11 Apr 2014

  1. The first rule of business is that the chance of return from investment indicates how high the profitability should be.
  2. If you do not get sufficient investment at the right time, then the business will have to rely on the entrepreneur's cashflow to grow.
  3. If the entrepreneur has given up their steady income source to start the business, then that business has a higher risk of failure if it is being used as the sole income for the entrepreneur.

I've experienced 1,2&3 with my family business, my previous employer and have no concerns with this if I setup a business of my own.
I'm not sure of the permaculture example, it's not my call to say if she didn't get enough, or if she simply went shopping with other peoples money.
Diaspora development pretty much died with the chief developer passing away at a young age, which is just one of those things where it is a good idea to document concepts and how to achieve project goals. (Admittedly, nobody could have reasonably foreseen what happened to that guy.)

As a counter-example, there are people in auckland and wellington who will take out mortgages for $2 Million solely on the basis of what they are currently earning.
I would doubt that forcing more regulations on people taking out large mortgages for the spurious reason of savings protection on investments would do anything useful.

As the whole concept of investment revolves around levels of risk relating to the return, this kind of risk is considered similar to private company shares, whereby it is expected that the investor actually weighs up the business case and takes a higher risk than a public company would offer, in return the investor waits and eventually either makes more back than they put in, or they lose what they hadn't expected back in the first place.

In conclusion, your logical fallacy is : expecting investments to be a sure return of your money.
Even treasury bonds can fail to be repaid at all, if there is a government crisis such as tea-party morons in the US senate, or Robert Mugabe as President.

AB

Adam Bullen Sat 12 Apr 2014

While I agree with @andrewmcpherson is saying, no investment is a sure thing.

Crowd funding needs a limit on what it can ask for. Without a limit, and with a good enough marketing campaign. Someone could dupe large number of non-savvy individuals into giving money to projects that they never intended to complete. This should be considered fraud and punished as such.

If on the other hand you feel like donating to my pocket fusion reactor project, I'm trying to raise $1 billion....just saying.

HM

Hubat McJuhes Sat 12 Apr 2014

@adambullen I don't want to invest anything, but I want to pledge for 5 of your reactors for me and my family. And I want them now. Do I get a mass rebate? AND A T-SHIRT WITH YOUR LOGO PLEASE.