Even if provisions of the JOBS Act make it easier to bring DPOs to market, the key motivator won't change: an entrepreneur's need for financing. That need can also be the cause of problems in the DPO market.
"Many companies are so deeply in need of funding, they often spend investors' DPO-target money instead of putting it in trust until they reach their funding goal," DutchOracle's Voskuil said. "The real need is to move DPOs towards an IPO standard of professionalism."
"DPOs are often viewed as a last resort for companies that need higher investment amounts than crowdfunding typically provides, aren't big enough to become potential IPO candidates, and don't have a network of mostly accredited investors," said Carol Roth, an entrepreneur and former investment banker.
Read MoreThe Wild West of alternative lending for small business
Limited regulatory oversight and requirements for companies to show sales on existing product lines can lead to confidence men pulling the wool over the eyes of investors.
Roth, author of "The Entrepreneur Equation: Evaluating the Realities, Risks and Rewards of Having Your Own Business," foresees more DPO negative headlines and the potential for ongoing regulatory revisions related to the equity crowdfunding provisions in the JOBS Act. "The biggest issue will emerge when some DPOs inevitably do not succeed and investors start losing most of their money," Roth said.
DPOs could "become a dog-and-pony show, where the company best able to talk its way through a deal may end up getting the money. It could get out of hand easily," said Pankaj Patel, associate professor of management at The Entrepreneurship Center at Miller College of Business in Muncie, Indiana.
But DPOs are a legitimate funding route for companies. "A DPO confers both market and grass roots legitimacy, substantially increasing a company's street and product credibility," Patel said. "Many companies tend to proceed from DPO and then get even more investors."