There is an information asymmetry between the investor and the executive. The traditional laws were designed to diminish that asymmetry - crowdfunding wants to

There is an information asymmetry between the investor and the executive. The traditional laws were designed to diminish that asymmetry - crowdfunding wants to workaround these laws to make starting companies easier - but it does nothing to address the problem of information asymmetry. To be more concrete - it is very easy for the executive to extract value from the company - some of them are blocked by law, but most are about just slightly overpaying for something (most notably their own salary) - which will always be on the margin and impossible to control by laws. Traditionally there are a few models for the investor to beat the asymmetry: 1. Become involved in the company - this can work only if you have a big stake in the company (with dispersed ownership you get collective action problems) and the company is a big stake of your activities (you cannot get involved much in many companies). 2. lend not buy equity (and require collateral etc) 3. The laws for public offerings - with all the strict accounting and other ways to information disclosure 4. Investing in startups. This is a small special case where investing can be something between becoming fully involved in the company operations and being a small shareholder of a public company. Startups goal is to grow a 100 times or die - so small continues extractions by the executives are ruled out. I think most crowdfunder proponents think it should fit in 4 - but probably the difference between 4 and 1 is not that big. Update: Just after posting this I realized that the information asymmetry is just one aspect of this - and it really is about principal-agent problem.