Crowdfunding has revolutionized access to capital, empowering startups and small businesses to bypass traditional gatekeepers and raise funds directly from everyday investors. Regulation Crowdfunding (Reg CF), introduced by the JOBS Act on May 16th 2016, was hailed as a game-changer, allowing companies to raise up to $5 million annually from non-accredited investors. Yet, despite the success stories that dominate headlines, the darker side of Reg CF – the failures – remains largely unspoken.
Promise vs. The Reality
The narrative surrounding Reg CF has been overwhelmingly positive. Entrepreneurs are told that crowdfunding democratizes finance, allowing promising businesses to access capital that would otherwise be out of reach. However, while many businesses succeed in raising funds, survival is another matter entirely.
According to industry estimates, the failure rate of venture-backed startups ranges from 70-90%. In equity crowdfunding, where investors often lack the same level of due diligence as institutional investors, failure rates can be even higher. Add to this the fake success rates spewed out by the industry, which classes a success as a campaign reaching it’s ridiculously low minimum funding goals (you can read more about this in a previous article: REG CF Crowdfunding Exposed: A Reality Check). Yet, discussions about what happens when crowdfunded businesses collapse are nearly absent from the mainstream discourse.
Recent Failures
A growing list of companies funded through Reg CF have shut down, leaving investors with nothing. Here are just a few recent examples:
Blokable – A promising housing development startup, Blokable raised funds from the crowd but ultimately failed. The company has shut down, and its website is defunct. No clear information has been shared regarding investor losses.
Sit-a-Bit (EnrichedHQ) – Despite efforts to stay afloat, declining contract renewals led to the company’s closure by the end of 2024. Investors have been informed that they will receive an equity write-off for tax purposes, but financial recovery appears unlikely.
Wicked BOLD – This vegan chocolate company expanded into the food industry but lost control of its growth. The business shut down in October 2024, leaving investors uncertain about their returns.
Golden Seed – A cannabis company that raised funds through crowdfunding, Golden Seed became insolvent in September 2024. Investors were informed that there would be no remaining funds to distribute.
The Black Bread Company – Once a promising Black-owned bread manufacturer, the company went out of business in September 2024. No formal investor update was provided, though reports suggest a complete loss for backers.
Nori – A blockchain-based carbon offset marketplace, Nori shut down in August 2024 due to a challenging funding environment. Investors and token holders were informed that no returns would be forthcoming.
Bandwagon – An analytics company, Bandwagon ceased operations in August 2024 after failing to secure an acquisition or additional funding. Investors were notified that there would be no distributions.
Planet Digital Partners – An investment platform for the gaming industry, Planet Digital Partners quietly vanished in July 2024. With its website and social media accounts offline, investors have been left in the dark.
Filthy Filly’s BBQ – A food truck venture that appeared on crowdfunding platforms, Filthy Filly’s BBQ shut down in July 2024. Investors received no formal communication regarding their funds.
Modal Living – A modular housing company, Modal Living ceased operations after rising costs and interest rates wiped out demand. The business plans to officially dissolve by early 2025, but investor outcomes remain unclear.
Source: Kingscrowd
The Silence on Investor Losses
Unlike traditional venture capital, where losses are expected and mitigated through diversified portfolios, Reg CF investors are often retail investors who lack such protections. When these companies shut down, investors are rarely informed of the specifics. Was there mismanagement? Fraud? Simply poor market conditions? These questions often go unanswered.
The lack of transparency leaves retail investors at a disadvantage. Many issuers provide minimal post-campaign communication, and crowdfunding portals—who profit from the initial fundraising—have little incentive to push for follow-up disclosures. Without standardized reporting requirements for failed campaigns, investors are left guessing about their losses.
Why Do Reg CF Startups Fail?
While the reasons vary, common factors include:
Overestimated Market Demand – Many companies raise funds based on overly optimistic projections that never materialize.
Insufficient Capital – Crowdfunding provides a financial runway, but many businesses need follow-on funding to survive. If they fail to secure it, they collapse.
Mismanagement – Founders with little business experience often struggle with scaling, operations, and cash flow.
Regulatory & Economic Factors – Changing regulations, rising interest rates, and economic downturns can significantly impact startups.
Failure to Pivot – Startups often need to adapt to market shifts, but those that cling to their original vision may perish.
The Need for Greater Accountability
While failure is an inherent part of the startup ecosystem, transparency should not be optional. Investors deserve clear post-mortems when a company shuts down, especially when the fundraising process involved public solicitation.
Potential solutions include:
Mandating Post-Mortem Reports – Crowdfunded companies should be required to issue final reports detailing financials, remaining assets, and the reason for closure.
Improving Due Diligence Standards – Platforms should implement more rigorous vetting processes for companies raising capital.
Investor Education – Retail investors need better tools and resources to assess risk before investing.
The Unspoken Risks of Reg CF
While crowdfunding continues to open doors for entrepreneurs, its risks remain largely unspoken. The startup failures listed above are just the tip of the iceberg. For Reg CF to maintain credibility, the industry must prioritize transparency and accountability.
If equity crowdfunding is to be a true democratization of finance, it must serve investors as much as it serves issuers. Otherwise, the promise of Reg CF will be overshadowed by its failures—failures that, for now, remain conveniently ignored.
