By JumpCrisscross

Crowdfunding nukes VC’s downside protection. VC funds invest through preferred stock or convertible debt for its downside-protection features. If that downside protection comes at the expense of unaccredited investors, the risk that one of them sues or a regulator gets involved on their behalf goes up. That could easily neutralise or even outweigh the benefits of the protection.

This isn’t limited to crowdfunding, by the way. A cap table of a hundred $10,000 cheques (I’ve seen these), even if all are from accredited investors, will have a harder time raising venture capital than one with a handful of early backers.


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