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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

#131

Post by mljoe »

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.

It's illegal, at least in the United States. Why? Because venture capital is considered too risky to be marketed as a public security. There are VC ETFs sold on the Hong Kong market.

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

#133

Post by morgante »

notahacker wrote: post #129
morgante wrote: post #126

Earlier quoted context omitted.

That sounds more like PE than VC.

And whilst PE might be ostensibly lower risk than VC, PE firms' ability to not lose money depends entirely on their ability to actively restructure companies and find a buyer, two things retail investors have no chance whatsoever to do

Oh I agree that equity crowdfunding is generally a bad idea for all involved.

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

#134

Post by notahacker »

hkmurakami wrote: post #70
FailMore wrote: post #37

Earlier 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…

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?

The follow on investors probably want to know why A16Z and other VCs competing with them for deal flow thought they were less valuable than people who hadn't met the founders...

(I mean, "frankly, we wanted the most money for the least equity and if that was dependent on the public having more inflated expectations than VCs so be it" is a perfectly valid answer from the point of view of running a startup, but it's still an adverse signal if the investors most informed about your company at the last investment round were those willing to offer the lowest price for your shares)

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

#135

Post by icantdrive55 »

sigil wrote: post #109
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…

Will VCs make better investments, on average, than retail crowdfunders? Probably. That's their job after all. Does that mean the law should protect crowdfunders from themselves? That I'm not so sure about. I can think of no more "Rich Get Richer" law than the accredited investor law [1]. It literally says: if you aren't already rich, you don't have access to this entire set of opportunities that could make you rich.…

"I can think of no more "Rich Get Richer" law than the accredited investor law [1]. It literally says: if you aren't already rich, you don't have access to this entire set of opportunities that could make you rich."

1. I remember trying to buy FB IPO stock.

2. Only the best/Richest Investors got it those first few day, because it was a hot IPO, and retail investment houses were doling it out to their best clients.

3. I rember thinking this is not fair.

4. A few days later--glad. Now--sad.

5. I believe the problem is it should be illegial for any Investment firm to cherry pick whom gets a shot at an IPO.

6. If you're stupid enough to invest in most start-ups, so be it. Let people invest in what they want; just don't sell those blocks of stock to certain people. Investing should be a level playing field, and it's not.

7. Oh this doesn't happen? Too lazy to look up examples, but it does.

8. I truly believe this bull market will only crash when the investment community succeeds in bringing back the Retail Investor.

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

#136

Post by ericb »

hkmurakami wrote: post #115
xiaoma wrote: post #111

Earlier quoted context omitted.

> "the industry's deal flow is large enough that they are fine with a small number of false negatives since false positives in their portfolio hurt more" This is backwards. Funding a company that goes nowhere is far smaller an error than turning down the next SpaceX.

A fund only has 10~20 bets it can make though. That likely influences the human decision making (could still be suboptimal). Afterall didn't A16Z catch some criticism for not investing a large enough sum into Instagram (which iirc had 500x returns or something) to make a large enough difference to the fund?

True, but is "my buddies' buddies" the smartest filter you can apply to increase the chances of finding a company that can return the fund?

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

#137

Post by notahacker »

mljoe wrote: post #128
notahacker wrote: post #127

Earlier quoted context omitted.

> I can think of no more "Rich Get Richer" law than the accredited investor law [1]. It literally says: if you aren't already rich, you don't have access to this entire set of opportunities that could make you rich. Or alternatively "If you aren't already rich, you don't get marketed at by people offering opportunities so bad they've been passed on by high-risk investors who underperform the returns the non-rich get…

That makes sense and all, but the definition of accredited investor is tied to net worth and not knowledge. Which means that maybe you can't scam poor people, but there are plenty of gullible rich people with net worth over the $2 million in liquid assets or whatever it is these days. Maybe treat being an accredited investor like a driver license and not tie it to your net worth?

Much easier to develop a roughly accurate heuristic for assessing people's ability to afford to misjudge risk or liquidity than to develop a roughly accurate heuristic for assessing their ability not to make such misjudgements.

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

#139

Post by blazespin »

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…

Disagree. I sure wish I could have got some equity (bundled via some proxy) along with my purchase of an oculus rift.

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

#140

Post by Frondo »

mljoe wrote: post #128
notahacker wrote: post #127

Earlier quoted context omitted.

> I can think of no more "Rich Get Richer" law than the accredited investor law [1]. It literally says: if you aren't already rich, you don't have access to this entire set of opportunities that could make you rich. Or alternatively "If you aren't already rich, you don't get marketed at by people offering opportunities so bad they've been passed on by high-risk investors who underperform the returns the non-rich get…

That makes sense and all, but the definition of accredited investor is tied to net worth and not knowledge. Which means that maybe you can't scam poor people, but there are plenty of gullible rich people with net worth over the $2 million in liquid assets or whatever it is these days. Maybe treat being an accredited investor like a driver license and not tie it to your net worth?

The difference is that when a millionaire loses $100k, they're not going to feel it the way someone who's taken out a second mortgage would.
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