Doubts Arise as Investors Flock to Crowdfunded Start-Ups

nytimes.com

Ryan Feit left behind his lucrative career at a private equity firm to chase the dream of crowdfunding.

Mr. Feit, a 33-year-old graduate of the Wharton School of the University of Pennsylvania, went to Washington several times to lobby for a new law that allowed small-time investors to buy stock in start-ups — and then set up one of the first websites that list companies trying to raise money.

But what Mr. Feit has seen since he set up his site, SeedInvest, has dented his enthusiasm.

Over the last two years, his company, which is based in New York, has turned away dozens of companies that wanted to raise money from investors on his site. Some of the companies had what seemed, to Mr. Feit, to be clear red flags for investors, but later showed up on other crowdfunding sites, where they have raised hundreds of thousands of dollars from unsophisticated investors.

One of the early companies he rejected was shut down by regulators — who labeled it a fraud — after it raised $5 million from investors. And Mr. Feit expects it won’t be the last.

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