HispanicBusiness

Investors will have to hold onto their securities for at least a year. It's unclear how they will be able to sell their stake after that -- or if anyone will want to buy it.

"That's the great unknown. What might develop down the road is a market for privately traded securities," Shirodkar says. If so, he adds, investors don't have to buy just publicly traded stock.

Regulators, including the SEC chairman, and consumer advocates rang early alarm bells as the bill made its way through Congress; the Senate added some investor protections to crowdfunding.

Still, these groups remain wary.

"To be honest, it's going to make our life more difficult," says Jack Herstein, president of the North American Securities Administrators Association and Nebraska's security regulator.

"In this case, an offer can be made five doors down from my office and I wouldn't know about it until maybe something went wrong," Herstein says. "After that time, the money is gone. It's lost and out of state. And if it's a true scam, out of the country."

Mary Wallace, senior legislative representative for AARP, adds, "We think it's another step toward deregulation in an already tricky marketplace with no real guarantees that the capital raised is actually going to fulfill the objective of job creation."

While acknowledging the potential for fraud, fans of the crowdfunding concept say regulations and litigation have made it too expensive and burdensome for entrepreneurs to raise capital. They say the JOBS Act, which also relaxes reporting requirements for certain companies, is a good first step.

"The JOBS Act at least shows that Congress is starting to think in the right direction," says James Angel, associate finance professor at Georgetown University in Washington.

Jason Hardebeck, executive director of the Greater Baltimore Tech Council, says the new law will make it easier for entrepreneurs here to get the money they need.

The traditional way of raising capital isn't cheap, he notes. Hardebeck says that during the early years of his own software company, WhoGlue, he spent nearly $50,000 in legal fees to raise $300,000.

He says mechanisms and organizations will evolve to alleviate most worries about fraud.

"My concern is not the fraud. It's that unsophisticated investors don't really understand what they are investing in," he says.

He says not every idea will turn into a viable business deserving funding. "There will be Dutch tulip bulbs that pop up along the way," he says, referring to the 17th-century mania in Holland that led to excessively high prices for bulbs.

And small investors will need patience before they can exit the investment and reap a reward, he says. Hardebeck, who sold his business last year to Facebook, says his investors had to wait 10 years.

Georgetown's Angel says would-be investors will have to do their homework.

"It's at a venture-capital stage. What you are investing in is not an existing company with audited financials. You're investing in the people," Angel says. "Ask, are these the kind of people that you want to do business with?"

Investors should never put more money into a startup than they can afford to lose.

Mercer Bullard, an associate law professor with the University of Mississippi, also warns that early investors will see a dilution of their stock's value as more capital is raised in subsequent years.

And these securities are not an alternative to stocks, bonds and more traditional investments, Pinnacle's Kitces says.

"If you see the stock market as risky, this is three times further out on the risk scale," he says.

The legislation moved swiftly through the usually gridlocked Congress. It's possible that the SEC will beef up investor protections when it writes the rules. But if fraud does become a problem, lawmakers will need to move even faster to stamp it out if they want crowdfunding to work.