FundersClub rewarding investors for referrals
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FundersClub rewarding investors for referrals
1–10 of 21 posts
Re: FundersClub rewarding investors for referrals
#2That line between a scheme and a business is getting blurrier.
By the by, Rebecca Grant, when you add financial incentives to referral marketing then it turns into something else. That's called affiliate marketing. And sometimes it creates pretty scummy situations and circumstances.
Re: FundersClub rewarding investors for referrals
#3I am a bit confused as to YC's thinking with encouraging a startup like this.
What are the revenue opportunities - not necessarily short-term, but even long-term - like?
Do they charge a fee on each investment made? Or do their fees just come from exits? If so, then their cash flows will look even more ridiculous than a regular startup - if you assume they only admit 'early stage' startups for starters to their platform (because I guess that's where the most friction is from a fundraising point of view, and where the more deals are, etc.) then they could go 5 years with no cash flows from those deals?
Am I missing something here?
If they charge per deal, does the investor pay or do the startups pay (aside from a % of equity)?
Edit 1:
So I just did some digging through the FAQ [1] on their site and found this, that pretty much answers my questions and now I understand why YC invested. Makes sense.
Neither FundersClub Inc. nor any of its employees receive any compensation from the administrative fees or any other transaction-based fees for its single company funds. FundersClub will charge a performance based carried interest for most of its funds, which are expected to provide returns over time. Our immediate goal is to develop a compelling funding platform that will benefit both the most promising startups and investors. Over time, FundersClub has a number of additional ways in which it can make money. FundersClub may operate liquidity services for private companies, including employee liquidity program management for private companies, and eventually a trading platform for private companies that wish to provide ongoing private market liquidity to their shareholders. We may also participate in the investment funds, which can achieve returns for us along with other investors. We will continue to assess the opportunities within regulatory and legal guidelines, and are not providing any of those services currently.
Re: FundersClub rewarding investors for referrals
#4I recognize that this isn't a pyramid scheme, but it does look a lot like a multi-level marketing structure.
MLMs can be viable, real businesses, but this may open the opportunity for abuse. I'm very interested to see how the SEC handles this.
I understand the founders want rapid growth, but accredited investors can make mistakes, and big ones. They are not professional investors, just accredited.
Re: FundersClub rewarding investors for referrals
#5Ah it's good to see that the colossal mistake of historic proportions (http://baselinescenario.com/2012/03/19/a-colossal-mistake-of...) Just Open Bucket Shops (JOBS - http://www.nytimes.com/2012/03/15/opinion/collins-the-senate...) act is in full swing and that the exploiters of it are already out there having at it with gusto. I'd like to propose a toast to the forthcoming increase in financial fraud, cost of capital and stupidity. Can I get a hip-hip-hooray for a reduction in investor protection?
More seriously, this entire situation feels eerily similar to the repeal of Glass-Steagall protections with GLBA back in 1999 (https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act).
The negative effects will take a decade or so to be felt, but felt they will be. It's probably hard for people to see it now, but this really is dodgy as hell.
Here's to another bubble.
Re: FundersClub rewarding investors for referrals
#6Ah it's good to see that the colossal mistake of historic proportions ( http://baselinescenario.com/2012/03/19/a-colossal-mistake-of... ) Just Open Bucket Shops (JOBS - http://www.nytimes.com/2012/03/15/opinion/collins-the-senate... ) act is in full swing and that the exploiters of it are already out there having at it with gusto. I'd like to propose a toast to the forthcoming increase in financial fraud, cost of cap…
Care to elaborate? Your comments are quite negative without a lot of backing/substance. Though you may have done a fair amount of research, it doesn't appear here -- I'm not sure this is the kind of critique hn should be about.
Re: FundersClub rewarding investors for referrals
#7The 20% carry FundersClub charges seems really disproportionate to the value they add.
A 20% carry for a VC makes some sense — the carry applies across the entire fund, not just for one specific company. So a VC fund can wind up net negative, and therefore charge no carry.
It's ridiculous for FundersClub to charge the same carry as a VC, but on each specific company. They're not taking any risks, or even providing much of a service. They're basically taking advantage of smaller investors with no other options, who already have the deck stacked against them.
Now with this referral scheme, angels have an incentive thats at odds with their fellow (smaller) investors, which is just an irrelevant distraction to the company being funded.
Re: FundersClub rewarding investors for referrals
#8Ah it's good to see that the colossal mistake of historic proportions ( http://baselinescenario.com/2012/03/19/a-colossal-mistake-of... ) Just Open Bucket Shops (JOBS - http://www.nytimes.com/2012/03/15/opinion/collins-the-senate... ) act is in full swing and that the exploiters of it are already out there having at it with gusto. I'd like to propose a toast to the forthcoming increase in financial fraud, cost of cap…
The article, and your comment, suggests that this move is strongly connected to general solicitation, but I think the connection implied does not exist.
In this context, Regulation D applies to the companies raising money through a private offering. Companies that want to avail themselves of general solicitation will need to take additional steps to be in compliance with the law. This includes filing a Form D 15 days prior to the first use of general solicitation and ensuring that written solicitation contains certain information and disclaimers.
If you're insinuating that private individuals are going to rush to refer to companies to FundersClub and then publicly solicit investments in those companies (i.e. through email blasts, advertisements, blog posts, etc.) in the hopes that they'll one day get a piece of FundersClub's carried interest (if there ever is any) as a result of the JOBS Act, you're going too far. That is not what the revisions to Regulation D are about and anybody who has that in mind would probably be well-advised to speak with an attorney.
Re: FundersClub rewarding investors for referrals
#9Ah it's good to see that the colossal mistake of historic proportions ( http://baselinescenario.com/2012/03/19/a-colossal-mistake-of... ) Just Open Bucket Shops (JOBS - http://www.nytimes.com/2012/03/15/opinion/collins-the-senate... ) act is in full swing and that the exploiters of it are already out there having at it with gusto. I'd like to propose a toast to the forthcoming increase in financial fraud, cost of cap…
The article, and your comment, suggests that this move is strongly connected to general solicitation, but I think the connection implied does not exist. In this context, Regulation D applies to the companies raising money through a private offering. Companies that want to avail themselves of general solicitation will need to take additional steps to be in compliance with the law. This includes filing a Form D 15 days…
Confirmed that FundersClub Refer is not connected to general solicitation or the JOBS Act. We are simply rewarding members (accredited investors) who are referring us companies that end up making it past our vetting and due diligence processes and becoming portfolio companies.
Re: FundersClub rewarding investors for referrals
#10"It benefits investors who want to make small angel investments without doing all the time-consuming due diligence ... The goal is to make venture capital a more open, democratic, and transparent process."
Im sorry but the investor can't do less due diligence and honestly expect more transparency. This is either terrible writing or a very fishy scheme someone is cooking up.