“From a business perspective, I think the business model of crowdfunding book equity is not practical,” said Ash Kalb, a tech lawyer and venture capitalist who founded Singularity & Co., which crowdfunds e-book editions of classic science fiction. “For 99.9% of books, the overhead costs of dealing with a large number of unsophisticated investors are going to be too high, and one lawsuit from a disgruntled investor wipes out the business. But really, it all depends on the bar the SEC raises with the rules, so we shall see.”
In England, where equity crowdfunding is already legal, Web sites such as Seedrs and CrowdCube think they have found ways to address the problems. CrowdCube has raised over £6.7 million from more than 30,000 investors for 46 businesses. Seedrs has funded 21 startups with more than £1 million total.
Figuring out how to churn out small publishing startups on an assembly line won’t be the only barrier to making crowdpublishing work. A bigger obstacle may be the changes in transparency that crowdfunded books require.
“Have you ever seen a 10-K or a securities offering? asks Kalb. “Do you really want to list risk factors at the start of your book? ‘No one may like this book. I may be a bad author. My wife may leave me. Werewolves may not be as popular next year...’”
The SEC has decided to drop its prohibition against "general solicitations" of securities for sale as long as they are available only to accredited investors, as required by the JOBS Act. (I don't understand how the SEC gets to decide whether to implement a law, just as I don't understand how Apple could have been an ebook monopolist before it sold its first ebook.) This is a LONG way from legalization of equity crowd funding, but at least some movement is happening.