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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

#61

Post by david927 »

OliverJones wrote: post #38

Hmmm. 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…

None of those reasons are exclusive to crowdfunding, though. I get that there are few good investment opportunities and a lot of cruft, but I wouldn't list the same reasons. For me the biggest issue is vision: All startups hope are chasing money, but some are chasing it to the exclusion of everything else. They don't see a different future, a better future; they simply see themselves richer. Funding such startups isn't even altruistic. The opposite, it's enabling a broken culture.

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

#62

Post by wehadfun »

I went to a workshop and asked a the guy what benefit does the investor have to buy shares of Tom's Tire Shop. The guy said it is just like buying Apple or Microsoft, and blah, blah, blah. No it is not like buying Microsoft. There is no way to liquidate your shares.

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

#63

Post by seibelj »

dangerboysteve wrote: post #46
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…

I'm on a few email lists from these crowd funding sites and the prospects that get emailed to me are less than stellar.

Totally 100% agree with you. I'm hoping that higher-tier entrepreneurs start to use it, but I don't see this happening

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

#64

Post by angersock »

lettergram wrote: post #53
zebrafish wrote: post #43

Earlier quoted context omitted.

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 c…

> A VC is a much stronger signal.

Sure, like all the folks that were in on Color and Clinkle, right?

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

#65

Post by aswanson »

skdotdan wrote: post #60
tptacek wrote: post #55

Crowdfunding 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.

Again, selection problem. Most VCs can do a raise on their reputation and not have to deal with quarterly reports; most funds are 5-10 year closed. Great VCs wouldnt want to deal with the hassle of going public and reporting losses every year for five years straight. Also, startup valuations can be....creative.

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

#66

Post by seibelj »

ericb wrote: post #47
cstavish wrote: post #28

Earlier quoted context omitted.

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.

I believe it. I also know that Realtors aren't too fond of For Sale By Owner houses. I suspect this comes down to a similar effect.

> I also know that Realtors aren't too fond of For Sale By Owner houses

This scares agents because a wide-spread DIY real estate industry kills all of the middlemen (themselves)

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

#67

Post by tptacek »

skdotdan wrote: post #60
tptacek wrote: post #55

Crowdfunding 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.

Someone has to get paid to do that, so now the premise of equity crowdfunding has been reduced to: in the best case, you can crowdfund another venture capital firm, and pay a tax out of your returns that wealthy investors don't have to pay.

And, again: most VCs fail! A lot of money is invested in VCs not in the expectation of those investments being lucrative, but instead in the hopes that VC returns are uncorrelated with the public markets. But no retail investor does that.

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

#68

Post by hkmurakami »

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 ?

No they are oversubscribed. They won't take our money even if we beg them.

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

#69

Post by aswanson »

tptacek wrote: post #55

Crowdfunding 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…

Its almost like crowdfunding a record label (remember those?), with the investors thinking they're getting a piece of Madonna or Michael Jackson record sales. It's a hits driven business, the returns are extraordinarily long tail.

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

#70

Post by hkmurakami »

FailMore wrote: post #37
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…

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…

What happens when the crowd funded company tells you that the cap on their note was 2x that of the A16Z backed one and they chose the route of less dilution at a stage where they were searching for product market fit?
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