This is a really good article about the risks inherent in investing in startups. Investing in startups is immensely risky. That’s the game and that’s why VC’s distribute that risk across so many companies.

But it’s even worse for the entrepreneurs. They throw everything they have into one startup. They can’t mitigate their risk, they can just do everything in their power to make it work and sometimes it’s still not enough. 

This NPR article does a great job of highlighting the problem with using Kickstarter to fund a startup. Kickstarter works great for what it was designed for, which is funding art projects (like documentaries and such) but when people fund a true startup and that startup fails; what then? 

These aren’t investors in the traditional sense. These are people wanting to buy something they like. If you entered the deal like a traditional investor, you would expect some failure and a high degree of risk, because you’re investing in the company not trying to buy a product. 

I’ve never used Kickstarter. I did back App.net, which was the only crowdfunding I’ve done. But I would be much more excited to actually invest in companies and would gladly except the risk that comes with it. 

I’ve literally been waiting for someone to do this for the last five years. I would rather invest my money in startups than a mutual fund.

Right now you have to be an accredited investor but if FundersClub works like most Angel investments you just have to fill out a form claiming you’re an accredited investor, you don’t have to be verified or anything so you could get around this. But their plan to set up some sort of mutual type fund for non-accredited investors would get around this illegitimately.