I read this Wall Street Journal story about a Silicon Valley startup, Loyal3, with great interest. This paragraph describes its business model:
Loyal3 has created an online app that would let companies sell, or even give, shares of stock directly to the public, with no brokerage fees, through a website or on Facebook, in increments as small $10. Small investors wouldn’t even have to buy a whole share. Loyal3 would let them buy and sell fractions of a share.
I thought it might be a step toward crowd sourcing venture capital. Prosper.com has made it possible to crowd source loans. I think crowd sourcing startup equity investments would be another good idea. Essentially, to have a Shark Tank that you don’t need to be a billionaire to participate in.
I’m no expert, but I believe SEC regulations do not make this easy, or maybe even possible, mainly to protect small, unsophisticated investors like myself from being bamboozled by snake oil salesmen.
As I read on in the Wall Street Journal article, I realized that Loyal3 wasn’t the Prosper.com of equity investing. Rather, it’s a bit more like a Sharebuilder.com, looking to fill a specialty niche in the investing market for small investors and for companies wanting to give out stock as a marketing campaign. A while ago, I believe you could buy shares in beer maker, Sam Adams, from the boxes of its 12 packs. Loyal3 basically helps with that.
I wish we could crack the crowd sourced venture capital nut. Given low-interest rates and equity investments that do not seem all that diversified anymore, it would be nice to have another market for our investments.
And, with lotteries and casinos where you are almost assured to blow your money, I don’t buy the argument that we need to be protected from snake oil salesmen.
We shouldn’t have to donate to create jobs either.
A crowd sourced venture capital market might produce a few jobs and a few products and services that make our lives better in the process, as well as give investors access to early stage, higher reward (and admittedly higher risk) investing.