It's great to see progress with the SEC and crowdinvesting. Even though we (Wefunder) aren't dependent on the JOBS act and the SEC, it's great for everyone that they're making this grey territory lighter!
SEC Greenlights One Style Of Equity Crowdfunding For Startups
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Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#12I'm personally tremendously excited about FundersClub. It seems like they have the right mix of a hands-on, closed system (for fundraisers) and self-serve, open system (for accredited investors, more or less). I am curious how much each startup has raised through the platform, though. They claim over $26m in total, split over (at least?) 8 companies: https://thefundersclub.com/site/pastinvestments/
Thanks! Right now, our seed investments per startup have ranged from ~$100k to over $500k. We have publicly announced about $4M of FundersClub investments. The $26M figure is the total capital going to our portfolio companies--other VCs frequently lead, co-invest, or follow-on to our investments, leveraging our own capital. We have invested in more than 8 startups but have not yet announced them publicly.
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#13Based on the verbiage, FundersClub is allowed to slide because "FundersClub and FC Management are advisers solely to venture capital funds", which has a very specific meaning that doesn't apply to crowdfunding. It's pretty clear that WeFunder will need to be registered broker-dealers. I'm surprised they didn't do it already -- it's not a particularly expensive or time consuming process (and here in NY at least people…
Correct, FundersClub is a venture capital advisor (ie, a VC), and is not relying on JOBS Act exemptions or a broker-dealer registration. The TechCrunch article title is not technically accurate, though in their defense, people do seem to want to group online VC in with crowdfunding at a high level. There are important distinctions, however.
I'm Josh, the author of the TechCrunch article. I've updated the post to reflect the differences between equity crowdfunding and the online venture capital model FundersClub uses. I've also noted that WeFunder takes the broker-dealer route.
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#14I hope this turns out well. As a dot-bomb survivor I recognized that a big chunk of that bubble was gullible 'retail' investors and unscrupulous people happy to separate them from their money. One CEO at the time remarked "these folks have more enthusiasm for the company than I do, that seems backwards."
My worry is that we'll get a race of people who have only seen (or read about) startups that when from a hundred thousand dollar investment into billions, dumping money they cannot afford to lose into these things. That would trigger a bunch of excess capital seeking outlet and result it being used inefficiently, and when these folks learned about the "9 out of 10 start-ups don't make money for their investors" truism, they will be angry and litigious. The latter because it was shown in the previous bubble that someone who invests 25,000 in a company with a sock puppet spokespuppet, loses most of that investment while the CEO gets a nice golden parachute package, is an easy mark for a plaintiff attorney looking to drum up business. Its a circle of pain.
So knowing it can go wrong and be painful, lets be smart about avoiding that ok?
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#15I hope this turns out well. As a dot-bomb survivor I recognized that a big chunk of that bubble was gullible 'retail' investors and unscrupulous people happy to separate them from their money. One CEO at the time remarked "these folks have more enthusiasm for the company than I do, that seems backwards." My worry is that we'll get a race of people who have only seen (or read about) startups that when from a hundred t…
You're absolutely right to call out these concerns ChuckMcM. FundersClub is a curated VC platform that carries out vetting and due diligence; fewer than 5% of inbound startups end up even making it to our vetting panel.
Even in spite of the above process, startup investing is risky, as we disclose in our FAQ. No one should invest money they cannot afford to lose in the startup asset category.
Also, something that might get lost in the noise around this article: "Technically, it’s not crowdfunding, but rather a venture capital advisor that raises funds online through a streamlined process rather than offline with traditional paperwork."
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#16I love the idea, but what is the plan to keep fraudulent fundraisers away?
FundersClub carefully vets all their companies; unlike platforms like IndieGoGo (which serves a different purpose), it's a very "hands-on" process with FundersClub ultimately creating an investment vehicle (LLC) for each company they feature. More: https://thefundersclub.com/site/vetting/
That only makes it more confusing. Look at the list of big names: When a big name gets a hold of a company they believe in, they usually take every share they can get for themselves.
Put another way: If someone thinks a company is going to provide a great return, why would they want to share that return with you?
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#17As long as it is stuck to "accredited" investors it's pretty boring.
I think the SEC is going to forced to give up on this concept after a few more years of conventional investment instruments available to most people struggling to keep up with inflation.
It's definitely true that some accredited investors are smart about investing but plenty of them are just people with a lot of money.
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#18I hope this turns out well. As a dot-bomb survivor I recognized that a big chunk of that bubble was gullible 'retail' investors and unscrupulous people happy to separate them from their money. One CEO at the time remarked "these folks have more enthusiasm for the company than I do, that seems backwards." My worry is that we'll get a race of people who have only seen (or read about) startups that when from a hundred t…
You're absolutely right to call out these concerns ChuckMcM. FundersClub is a curated VC platform that carries out vetting and due diligence; fewer than 5% of inbound startups end up even making it to our vetting panel. Even in spite of the above process, startup investing is risky, as we disclose in our FAQ. No one should invest money they cannot afford to lose in the startup asset category. Also, something that mig…
Hmm... So I go and buy a lottery ticket. Then go around selling people a piece of the ticket for 1/10 of what it cost me ($1, so 10 cents). I sell it to 100 people, and manage to make $9. Cool. I made money. But what happened to the lottery ticket? Did I win? No. The aim was never to have the winning ticket, but to sell a piece of the ticket and profit. What happened to those that bought a share of the ticket? They stopped playing the lottery.
Even in spite of the above process, startup investing is risky, as we disclose in our FAQ. No one should invest money they cannot afford to lose in the startup asset category.
Stop calling it an investment. What you do is pure speculation. It is not an investment fund per se. But a speculation fund. But you can't call it that due to how people do not like the word "speculation" (for a reason).
I just think this "startup" is going to set off a lot of copycats and thus mark the beginning of the end.
Anyhow, I'm not against it. God knows I want this model to happen, so I can buy more cheap stocks.
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#19As long as it is stuck to "accredited" investors it's pretty boring. I think the SEC is going to forced to give up on this concept after a few more years of conventional investment instruments available to most people struggling to keep up with inflation. It's definitely true that some accredited investors are smart about investing but plenty of them are just people with a lot of money.
That's precisely the intent and effect of the JOBS Act: to open opportunities like these to unaccredited investors.
Re: SEC Greenlights One Style Of Equity Crowdfunding For Startups
#20I hope this turns out well. As a dot-bomb survivor I recognized that a big chunk of that bubble was gullible 'retail' investors and unscrupulous people happy to separate them from their money. One CEO at the time remarked "these folks have more enthusiasm for the company than I do, that seems backwards." My worry is that we'll get a race of people who have only seen (or read about) startups that when from a hundred t…
You're absolutely right to call out these concerns ChuckMcM. FundersClub is a curated VC platform that carries out vetting and due diligence; fewer than 5% of inbound startups end up even making it to our vetting panel. Even in spite of the above process, startup investing is risky, as we disclose in our FAQ. No one should invest money they cannot afford to lose in the startup asset category. Also, something that mig…
> Technically, it’s not crowdfunding, but rather a venture capital advisor that raises funds online through a streamlined process rather than offline with traditional paperwork.
Nice. So the VCs won't have to answer to big limiteds, who would make demands like lowering fees (as in the dot-bomb).
It brings up the more general question: Since the avg retail guy is clueless, what prevents them from getting severely taken advantage of? So far, this looks a whole lot like CMGI.