Count me a Luddite when it comes to social media in general, and more specifically, the supposed potential for crowdfunding and raising capital for start-ups and small businesses. My skepticism about crowdfunding admittedly has its roots in the resistance to public solicitation of non-public offerings that 20 years in state securities regulation embedded in me. Publicly solicited “private placements” before the advent of Rule 506(c) were all but certainly fraudulent. But, times (and exemptions) change.

Now, the word on the street is that the SEC has dragged its feet too long on promulgating its Congressionally mandated rule on crowdfunding under the JOBS Act, so the Republican House is going to take matters into its own hands and legislate a more rational crowdfunding exemption than the provision in the JOBS Act and proposed rule, without the need for SEC action. I can’t wait to see that hummer!

Since the subject of allowing crowdfunding for investments first arose in the initial rumblings that preceded the JOBS Act, there have been literally hundreds of articles, blogs and other commentaries tooting crowdfunding as the panacea for raising capital for start-ups and small businesses with the result that all sorts of new jobs would be created (a claim based more in hyperbole than empirical evidence.) Jobs? Perhaps some, but enough to make a national economic difference? Really? There has been at least one University of Colorado law review article on comparable legislation in Great Britain, and I have assisted a former securities law student of mine at the James E. Rogers College of Law, University of Arizona, in preparing her own article on crowdfunding that includes a review of British as well as other European capital raising crowdfunding regimes.

Most of these articles on crowdfunding appear to have been written by people who hope to profit providing services to general public crowdfunding principals once it’s lawful. A good share of them have been observations and opinions written by lawyers who regularly critique federal and state regulations, proposals and market developments. To one extent or another, the articles focus on Congress versus the SEC, or the needs for capital raising versus securities regulations.

These proselytizers and commentators have all but ignored what is truly the other side of the investment equation—the investors. I’m not talking about fraudsters. That dirty element will worm its way into whatever system is finally implemented, to one extent or another. I’m focusing here on the people who send their money to hopeful, legal crowdfunding issuers.

If the proponents of investment crowdfunding can run the “start-up businesses create jobs” pennant up the rhetorical flagpole, it’s only fair to allow me to hoist the “most start-up enterprises fail within five years” banner up right along next to it.

The unfortunate reality is that start-up businesses make horrible investments. Few of them survive at all, let alone turn a profit any time soon, let alone provide a return to investors. Investing in start-ups is like hunting ducks with a rifle, and few investors have enough “bullets” to fire.

Entrepreneurs are eternally enthusiastic, energetic and optimistic. They have to be. For many years, the dreamers (and their counsel) urged Congress and the SEC that “if only the ban on public solicitation and advertising were lifted, we could all fund our private placements.” Now that that cat is out of the bag with Rule 506(c), at least for accredited investors, the chant has shifted (predictably) to, “if only we could use crowdfunding to publicly solicit and advertise to reach non-accredited investors.”

If a start-up entrepreneur—I’ll call him “Fred”—is ready to turn to looking for funding from strangers, I think it fair to draw an inference or three about what has happened to date. First, Fred is tapped out on his own funds. Second, the bank has said or would say “no” to a loan, based on Fred’s lack of collateral or some other deficiency. Third, anyone Fred knows (and he may not know anyone) who might invest in his business—those people and businesses with whom he has a “pre-existing business or personal relationship”—have either invested as much as they are going to, or have found ways to be “on vacation in the Australian outback and hard to reach” when Fred has come calling for money the first time or for more later.

At this point, many entrepreneurs would keep working until they had saved up enough money of their own, or grew to qualify for that bank loan. A lot of business owners I’ve encountered have no interest in selling equity in their businesses to investors. But there are certainly those who are willing to do so. Whatever, at this point, “Fred” has now gone through all his own cash. His business and personal profile are insufficient to qualify for a bank loan, even if government subsidized. In other words, the professional lenders won’t touch him. Further, anyone who knows him and/or his business who might invest have either done so or won’t. With investment crowdfunding, Congress and several state legislatures and regulators have made the public policy decision to let Fred now turn to perfect strangers, the general public. So, the smallest, riskiest, least sophisticated, most poorly funded, most likely to fail business owners can turn now to the general public for investments when all the professionals and close-in people, those in the best position to know Fred and evaluate his company’s investment potential, have said “no” or “no more.”

To me, this is a public policy that makes no sense. If Congress wants to promote investment in start-ups and small businesses to create jobs, let them direct the Small Business Administration to ease their guarantee standards for SBA loans. Oh, we can’t do that because the SBA would go broke guaranteeing bad loans, thus requiring more federal funding? What’s wrong with this picture?

“Investing” in start-ups is akin to a parent “lending” money to her 24 year old. Good luck ever seeing that money again! At least she’ll get a Mother’s Day card. The non-investment crowdfunding successes to date have usually involved donors getting a sample product, a discount, or a souvenir tee shirt, baseball cap or the like in exchange for their donation. Perhaps Congress should take a hint from these crowdfunding success stories in fashioning its investment crowdfunding legislation, and mandate that investment crowdfunders distribute a commemorative sweatshirt along with their securities. That would at least give the investors something tangible to remember their investment by, and would create jobs by increasing demand for commemorative sweatshirts! Oh, wait, those are made in Malaysia.