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Open Crowdfund: a Reputation-Based Investor's GuideOpen Project Addresses Concerns About Crowdfunding Fraud (April 11, 2012)
SAN DIEGO, CA -- (Marketwire) -- 04/11/12 -- For the first time since 1933, the recently-signed JOBS Act will allow ordinary individuals to invest in startups and local small businesses. A new project, Opencrowdfund.com, is designing a reputation system to investors find promising companies.
"The system will identify companies that are well-regarded by trusted entrepreneurs," says project founder Bayle Shanks. "This project is open, yet for-profit, and we invite the public to join us and help design and develop it. We intend to use the reputation system we are developing to recognize and reward contributors."
Small business investments can be exciting but also risky. The success rates of new businesses can be as low as 15% (as reported by Avnimelech in 2007). In addition to the risk of failure, there is concern about potential fraud. "[Scam artists could pretend] to be legitimate businesses seeking crowd funding," said Jack Herstein, president of the North American Securities Administrators Association, while noting that he is not opposed to crowdfunding if properly regulated, according to a story by the San Francisco Chronicle.
"A reputation system will not stop 100% of fraud, but it can help, because it allows investors to see if trusted business experts think that an investment opportunity is real. Our reputation system is collusion-resistant; this will protect the system's integrity from fraudsters. We are also exploring other procedures to deter fraud in crowdfunding," says Shanks. "One idea is to ask companies to pledge to publicly open their books and show how they spend the money they raise. We would love for people to send us other ideas."
Open Crowdfund is hosted by PieTrust, an open company that specializes in reputation systems.
7770 Regents Rd #113-404
San Diego, CA, 92122
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