The problem is supply side. Crowdfunded companies are giving the platform 5-10% of the capital raised. Why crowdfund and have a whole bunch of investors on your captable and give up some of that money AND deal with the compliance cost of you're strong enough to get it from angels/seed VCs. Current regulations force a broken model.
U.S. Startups Fail to Attract Expected Crowd of Small Investors
51–60 of 168 posts
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#52Earlier quoted context omitted.
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.
I agree with you historically. > the incentives to make a company are less than simply get good at raising money and then skim as much as possible I worry that, with the rules the way they are, the only people who will use them are people that are trying to do this. For instance, the company the OP is about. If you make it actually easier to raise money , more legitimate companies (that want to spend less time on rai…
I don't think internet reputation effects are enough at this stage. The SEC's fear of everyman investors getting taken advantage of appear well-founded. Just yesterday Kickstarter started a program aimed at addressing the provenance of high profile flops that were funded and then skimmed: https://techcrunch.com/2017/05/18/kickstarter-launches-tools...
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#53Earlier quoted context omitted.
I was a VC. I think it is mainly that it is a very weak signal. A good VC or a select group of high quality angels does help a company get itself in order, so raising money from a large collection of distant angels tends to be a signal that the quality of the company must be low - as they should have tried to raise from high quality individuals first. A company with crowdfunding will have to display stronger metrics…
as they should have tried to raise from high quality individuals first.....got a check from Andreessen Horowitz and the CTO of LinkedIn Exactly the point the parent was making. Those are big time contacts. Somebody outside of the valley now has a chance to get $1MM(!!!!) of seed money for their idea without having to relocate and schmooze and network. I'm as big a proponent of real world social skills as anyone, but…
I actually am torn on the subject. I'm not a VC, but I do invest heavily and regularly track various companies. That being said, I recognize my opinion might mean little, but...
Product-market fit is definitely a good sign a company is on the right track in terms of product. However, 99% of what makes a company successful is execution. A crowd funded campaign on Kickstarter doesn't need to even be possible[1] or it can be completely silly [2]. It doesn't need to show a 100x growth, nor does it need to exist.
On the other hand a VC will do vetting, to make sure the team is right to execute to solve a problem. Let's put it this way:
* A VC invests in a team to solve a problem
* Crowdfunding invests in a product/idea
A VC is a much stronger signal.
[1] https://www.kickstarter.com/projects/gnut/kickstarter-open-s... [2] https://www.kickstarter.com/projects/elanlee/exploding-kitte...
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#54Hmmm. I'm an accredited investor. I'd have to be crazy -- or altruistic -- to invest in a typical SaaS / software / Sili Valley startup via crowdfunding. Why? * Waste: Absurdly high cost of living in places with startup culture means labor costs must be excessive or you can't get the people you want. * Focus: Not every software-style startup has Joel Spolsky or another leader with his kind of focus. * Unicorns. For i…
"You can't the people you want" is itself a problem with these companies: often the people they want have credentials suggesting better suitability to academic or applied research when the job the need done suggests "average CRUD developer" credentials are just fine.
This is, in fact, one reason I find the obsessive focus on the Valley as far as VC and other investment mechanisms a little perplexing. These companies have a giant misunderstanding about many aspects of software business, from basics like "who is best to hire" (as opposed to "how to hire the best") to really basic engineering processes and marketing. Maybe the point (from their perspective) of getting VC capital is to get the other benefits that come from it: a network of folks who (should) understand these things.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#55Crowdfunding appears to be a terrible deal for retail investors:
* VCs survive by maintaining portfolios of companies in which 1-2 in 10 survive (most VCs fail to generate returns that beat the public markets). This means more than that you need 10 companies --- it also governs the kinds of companies you can invest in. Despite being a message board in part dedicated to startups, it feels like very few of the relatively specialized people here understand why VCs don't back quietly, steadily profitable companies.
* VCs compete for access to dealflow. The very best startups don't need to crowdfund and will usually get better terms from VCs. Moreover, there are logistical hassles with adding retail investors (in any form) to your cap table. All this is compounded by a signaling problem, where taking crowdfunding taints your company in the eyes of future VCs. So there's a huge adverse selection problem.
* Retail investors are given a deceptive view of the outcomes for startups. We all know most startups fail and zero out their investors (any S&P 500 component that did that would generate nationwide headline news for weeks). But more startups fail than we think, because many (maybe most) startup acquisitions are really managed failures.
There are probably more reasons than this.
I think equity crowdfunding is structurally broken, and more likely to hurt people than to do anything for our technology market.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#56This 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…
> Not every idea has to have billion dollar potential If I'm going to seriously join a crowdfunding investment, I'm going to be thinking like a VC. I would happily join a smaller "lifestyle" company as an employee or cofounder, but I probably wouldn't give them much money. I expect 9 out of 10 of my investments to fail, so I also need to look for those 10x opportunities. On the other hand, if it's just a token amount…
> I expect 9 out of 10 of my investments to fail
You are probably better off taking your money to Las Vegas and playing blackjack. At least there you only lose 6 out of 10 investments.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#57Earlier quoted context omitted.
I was a VC. I think it is mainly that it is a very weak signal. A good VC or a select group of high quality angels does help a company get itself in order, so raising money from a large collection of distant angels tends to be a signal that the quality of the company must be low - as they should have tried to raise from high quality individuals first. A company with crowdfunding will have to display stronger metrics…
I think this bias is mistaken--because VC's use their network as a filter, it falsely equivocates strong business/strong founder with individuals who landed on a social graph that happened to have VC connections. Biases like this are market inefficiencies that can provide outsize returns for those who learn to look past it.
In order to fight that bias, a startup would need to turn down a check from a big VC name (Sequoia, a16z, KPCB, Benchmark) and choose crowdfunding.
Until that happens, the implicit assumptions is that the startup tried shopping itself around to first-tier VCs and angels, failed, tried to go to second-tier VCs and angels, failed, so crowdfunding is their last resort.
Alternatively, a crowdfunded startup scorned by VCs needs to make a really nice exit or achieve a very impressive unicorn valuation.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#58This 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.
The way AngelList (and I think FundersClub, too) handle it is to set up an LLC. The investors are then partners in an LLC, not direct shareholders.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#59Why not to create a massive crowd-funded or publicly traded VC fund? (as opposed to crowd-funding for a single startup)
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#60Crowdfunding appears to be a terrible deal for retail investors: * VCs survive by maintaining portfolios of companies in which 1-2 in 10 survive (most VCs fail to generate returns that beat the public markets). This means more than that you need 10 companies --- it also governs the kinds of companies you can invest in. Despite being a message board in part dedicated to startups, it feels like very few of the relative…
Why not to create a massive crowd-funded or publicly traded VC fund? (as opposed to crowd-funding for a single startup)
Thus more people could expose themselves to VC but in a diversified manner. Also, more capital would be available for startups.