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U.S. Startups Fail to Attract Expected Crowd of Small Investors

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Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#21

Post by jerf »

petra wrote: post #13
hkmurakami wrote: post #7

Earlier quoted context omitted.

Iirc VC as an industry loses money (or has poor returns), with the top 10 firms dominating the returns and some small number of startup firms posting great returns (iirc this is from a Jason lwmkin's post) So i think your index fund performs quite poorly.

Are there any viable ways to open the top-10 for investment by bug funders ?

I suspect that what you're seeing is basically than the large firms are successful enough and funded enough so they don't need more money that they "negotiate" themselves 100% of the value. What can you bring one of the top-10 investors that they don't already have, such that they'd be willing to share the benefits with you?

Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#22

Post by Retric »

dave_sullivan wrote: post #17
mindcrime wrote: post #11

Swat said the practice is still in its infancy. Wefunder, StartEngine and SeedInvest are the primary crowdfunding platforms, and many founders aren’t aware that equity fundraising is an option. This, and some people (like me) probably just got tired of waiting for the SEC to do their part, and quit paying attention to the whole thing. When the JOBS Act first passed, I was pretty excited. Then something like 3 years w…

> some people (like me) probably just got tired of waiting for the SEC to do their part Yeah, same. Last I checked, the rules they did come out with were pretty restrictive. This article almost makes it sound easy, but if you read the full text, it basically comes down to "If you can raise money from any other source, like VC, private equity, institutional investors, or angels--do that instead because it's easier." Y…

Sadly, the SEC is fairly correct on this one. At least in terms of the history of finance.

If you let companies raise either a lot of total money or a lot of money from one person the incentives to make a company are less than simply get good at raising money and then skim as much as possible. Then run for the hills or repeat.

Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#23

Post by andygcook »

badloginagain wrote: post #6

I would be willing to buy into a crowdsourced VC fund- I give money to the fund for a slice of it, which in turn vets and invests in early stage startups. They hit a big payout, my slice becomes more valuable. The thing is, I don't want to do any work. I want someone else to do the vetting and the paperwork to invest. Obviously, they get a bigger piece of pie. Basically, I want an index fund for early stage startups.…

This is what AngelList essentially does with their newly launched AngelFunds platform. You back an operator (typically other entrepreneurs) as basically an LP and they invest your money for you: https://angel.co/angel-funds

It's different from AngelList syndicates, which have been around for awhile: https://angel.co/syndicates

With syndicates, you get access to the deal flow of the person's syndicate you support, but you still have to decide to back each individual deal and for how much yourself. It still takes some work on your end.

In case anyone's wondering... the benefit of a syndicate as a startup is that it allows you combine smaller investors into one combined entity on your cap table. If you were to just take a lot of smaller checks, you might end up with dozens, if not hundreds of individuals you now have to do paperwork for, collect money from and thereafter manage on your cap table indefinitely. Syndicates make the process much faster and easier to manage.

We did a syndicate for my startup, Tettra: https://angel.co/tettra

Using a syndicate we were able to add ~10 smaller angels to our round that we probably wouldn't have otherwise brought in. The interesting thing now too is that probably about half of those people are some of our most helpful investors.

Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#25

Post by seibelj »

This is anecdotal, but I chatted with a VC for a while at an event and he said their firm will not invest in anyone who did equity crowd funding, on the theory that it signals a weaker company. If they were stronger, they would have raised proper VC.

I think the existing VC investment structures hate the idea of crowdfunded VC as it threatens their model, which is personal connections and an old boys (and girls) network which allows more favorable terms for investors, especially for first-time founders.

I hope that crowdfunding becomes more normal. Not every idea has to have billion dollar potential, which is what most VC's are looking for.

Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#26

Post by ShannonAlther »

Lagged2Death wrote: post #3

I thought the whole deal with startup investing was: Invest in a few dozen companies and hope you get one hit so big it makes up for all the others, which you expect to all go down in flames. That can work if you have millions to spend and the time, connections, and access to pal around with dozens of founders, looking for the good eggs. For a "small investor" who has a small fraction of a middle-class paycheck to sp…

Bloomberg, apparently. It's just like day trading: sure, you might get lucky, but you have to know or have something the rest of us don't to get consistent returns. Just invest in an index fund.

Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#27

Post by inputcoffee »

As an investor, consider the following:

1. They give you very little information. Sometimes just sales numbers or some "traction" metric and a para on future plans. They talk about their unique angle but not about their challenges.

2. You put money in and you get very infrequent updates. Sometimes something along the lines of "sales are ok" or "sales fell" without much detail. It is treated as a favor to you, not an absolute right as an investor.

3. If they need to raise funds again, suddenly they become more chatty.

4. As an investor, my alternative is: public stocks! A lot more information, a lot more liquidity. For the large stocks you're competing with geniuses at hedge funds but the smaller stocks usually have less competition.

Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#28

Post by cstavish »

seibelj wrote: post #25

This is anecdotal, but I chatted with a VC for a while at an event and he said their firm will not invest in anyone who did equity crowd funding, on the theory that it signals a weaker company. If they were stronger, they would have raised proper VC. I think the existing VC investment structures hate the idea of crowdfunded VC as it threatens their model, which is personal connections and an old boys (and girls) netw…

Accredited investors/VC (disclaimer: I am neither, but co-founded a VC-backed startup) are often wary of crowd funding because of the idea that with more investors, the more headaches that can occur with additional capital raises. Having a big cap table doesn't make company operations easier. I honestly don't know how valid those viewpoints are, but that's what I've heard.

Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors

#30

Post by kevmo »

Another slice of the explanation for this can be found in the ceiling there is on crowdfunding: Your investors aren't people with deep pockets; it's those who generally don't have even one full extra paycheck in the bank. When they give you $20, that may mean they don't see a movie with their S.O. that weekend, etc. The money pool is much shallower.

Raising the minimum wage would be good for crowdfunding.

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