Over the past few weeks, I’ve read opinions on crowdfunding covering the entire spectrum.  The most pessimistic ones tends to be written by lawyers (surprise, surprise) and sound something like: “This is the worst idea ever.  Regular people are going to get screwed.”  The most optimistic ones have obviously come from people who either own or are affiliated with crowdfunding platforms, sounding something like: “This is going to revolutionize startups.  Venture capital and Angel financing are going to get disrupted.”

In my own characteristic fashion, I’m somewhere in the middle. I’d summarize the pros and cons of crowdfunding as follows:

Pros:

• I’ve seen a lot of dumb accredited investors, so might as well level the playing field a bit.  The investment amount limits are reasonable.
• This really could be a viable alternative to straight bootstrapping or conventional bank-rolled debt financing.
• Might open up funding to the “long tail” (sort of) of business types that don’t fit the hockey-stick trajectory required for venture capital, but are still too capital intensive for a typical entrepreneur to bootstrap.

Cons:

• Disclosure obligations are likely to make it expensive, or at least certainly more expensive than a typical seed round.
• Liability exposure to civil suits will make follow-on funding from institutional capital much less likely.
• Could limit future exit opportunities if acquirers can’t find a viable exemption through which to offer their own securities to the crowdfunded investors.

In a nutshell, I’m of the opinion that (1) nobody who can raise angel or vc money will crowdfund, and (2) most professional angels and institutional investors won’t touch a crowdfunded company with a ten-foot pole unless it’s somehow gone from being unfundable (which is why it crowdfunded to begin with) to Pinterest-esque hotness after its seed round.  Of course, an argument could be made that the SEC might soften some of the disclosure/liability issues, but do you really want to argue that the SEC is going to soften restrictions?

But that doesn’t mean crowdfunding won’t be revolutionary.  There’s a whole spectrum of business types out there that could really use another source of capital.  Not just restaurants and salons, but perhaps niche hardware plays like the ones that are getting a lot of attention on Kickstarter, or maybe specialized apps.  Also, keep in mind that these are thoughts about where crowdfunding will be out of the gate.  Where it goes as the concept matures and expands is a completely different story. I’m really excited to see what happens, even if I likely won’t get much exposure to it inside my practice area for the foreseeable future.