Small businesses see potential positives and perils from crowd-funding
A 2012 federal law known as the JOBS Act opens the door to allowing small, privately owned businesses to market ownership stakes in their ventures to people over the Internet.
"It seems unlikely that many issuers will go to the trouble to provide all of that information for a relatively small capital raise using the crowd-funding exemption," Murphy said.
That would be fine with Andrew Stoltmann, a Chicago lawyer representing investors. For every crowd-funding success, there will be hundreds of failures that burn unsophisticated investors who were eager to supplement their retirement income, he said.
"Investing in startups is the red-light district of the investment world," Stoltmann said.
Christopher Cain, partner in Foley & Lardner's venture capital practice in Chicago, helps technology startups with financing. He is also co-founder of Catapult Chicago, a technology accelerator for Chicago startups.
He said tech startups in Chicago and on the East and West coasts have "adequate" access to venture capital and wealthy individuals and are less likely to need equity crowd funding that could result in a large number of individual shareholders.
And "a lot of startups don't want that many shareholders," Cain said, because "sophisticated angel investors or venture capital may not want to invest in a company with dozens or hundreds of shareholders because it could be unruly."
byerak@tribune.com
