A. The SEC has adopted its rules to allow individual investors to fund startups, as a consequence, many crowdfunding sites are popping up. If you are thinking about investing money in those startups, other than the expected risks associated with a business, and the low liquidity risk common in private equity investment, another major risk is how legit that business is!
A Recent SEC Lawsuit
While some of the crowdfunding sites claim to do their own screening, in the end, it's individual investors' responsibility to assess the risks. Just take a look at what the SEC lawsuit against Ascenergy, a Las Vegas-based start up that appeared at multiple crowdfunding sites recently -
"Ascenergy's disclosures contain multiple, material misrepresentations about the company and the nature of the offering".
"Ascenergy falsely holds itself out as a credible energy company, and it presents the investment as a novel and extremely low-risk opportunity that will essentially guarantee investors out-sized returns. In reality, Ascenergy is, at best, offering a high-risk investment in undeveloped and unproven conventional oil and gas wells."
The Bottom Lime
There is no free lunch in the investment world. Risks and returns always go together, and don't expect you to be the person who can find that opportunity with great return and little risks.