Crowdfunding has the potential to revolutionize how small businesses raise capital, but it generates an old worry: the possibility for fraud.
But crowdfunding advocates say not to worry. The public nature of the investing model should help investors quickly identify and put a stop to bad behavior.
The social networking aspects of crowdfunding portals enable legitimate investors and startup companies seeking capital to identify players who aren’t playing it straight. They then can quickly isolate and report anyone involved in fraud, crowdfunding experts say.
“There is a level of transparency there that hasn’t existed before,” said Mike Morin, who leads portfolio relations for the $15 million Start Garden fund that uses public participation in its investment decisions. “Somebody may get away with ripping somebody off once, but they won’t get away with it twice.”