Seeing the Inherent Risks of Crowdfunding Through the Story of Eyez

When a two-man company promoted an innovative pair of glasses called Eyez that could record video on last year, technology media gushed over the idea, and people contributed over $300,000 to fund its development. Yet even today, Eyez glasses still haven’t been produced and backers have yet to receive the pairs they were promised. The entrepreneurs have curtailed providing online updates on the project and won't answer questions from backers. Seeing such a small unproven project lure $300,000 in a short period of time highlights the potential power, but also the risks, of crowdfunding.

Hopes are high that crowd funding could be one answer to help fix the USA’s economic rut, where job and business growth has been anemic in part because of tighter lending. Crowd funding is supposed to give entrepreneurs a direct line to individuals willing to bankroll relatively unproven companies. Some think crowd funding could be an alternative to a stock market that has turned hostile to new companies as investors demand higher returns and companies face higher costs to comply with securities regulations.

Despite the theoretical allure of allowing consumers to fund such early-stage companies, though, lessons from crowdfunding’s very early days shows the risks, including a large chance of delays, higher risks than initial public offerings and the risk of entrepreneurs misrepresenting themselves.

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