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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

#11

Post by mindcrime »

Swat said the practice is still in its infancy. Wefunder, StartEngine and SeedInvest are the primary crowdfunding platforms, and many founders aren’t aware that equity fundraising is an option.

This, and some people (like me) probably just got tired of waiting for the SEC to do their part, and quit paying attention to the whole thing. When the JOBS Act first passed, I was pretty excited. Then something like 3 years went by and you still couldn't do crowd-fund equity fund-raising. By then, the whole thing had pretty much dropped off my radar.

I think as information about this percolates through the ecosystem, it will become more commmon place. But right now there's a lot of uncertainty and doubt surrounding the whole thing, and I expect that's hurting adoption.

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

#12

Post by corford »

badloginagain wrote: post #6

I would be willing to buy into a crowdsourced VC fund- I give money to the fund for a slice of it, which in turn vets and invests in early stage startups. They hit a big payout, my slice becomes more valuable. The thing is, I don't want to do any work. I want someone else to do the vetting and the paperwork to invest. Obviously, they get a bigger piece of pie. Basically, I want an index fund for early stage startups.…

I think Syndicate Room is about to (or already does?) offer something like this.

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

#13

Post by petra »

hkmurakami wrote: post #7
badloginagain wrote: post #6

I would be willing to buy into a crowdsourced VC fund- I give money to the fund for a slice of it, which in turn vets and invests in early stage startups. They hit a big payout, my slice becomes more valuable. The thing is, I don't want to do any work. I want someone else to do the vetting and the paperwork to invest. Obviously, they get a bigger piece of pie. Basically, I want an index fund for early stage startups.…

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 ?

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

#14

Post by mindcrime »

muninn_ wrote: post #2

Yup. And this is because if you're a startup and you take investment from these "small investors" I can't recall the actual classification (class 3 maybe or something like that?) VC and accelerators simply won't touch you. So there's no point. And then, if you're a "small investor" and you had, say, $5,000 to kick toward a startup for speculative investing, the VCs simply say that it's not enough money and they're ju…

And this is because if you're a startup and you take investment from these "small investors" I can't recall the actual classification (class 3 maybe or something like that?) VC and accelerators simply won't touch you. So there's no point.

Sure there is, if you never planned to seek VC funding anyway. I'm sure there are plenty of companies that just need a little money to get over the initial hump or two, and then plan to rely on organic growth. If you're not worried about being a "moonshot" and don't have huge capital expenses (eg, manufacturing a physical product, drug trials, etc.) then this could quite possibly work for you.

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

#15

Post by ThomPete »

badloginagain wrote: post #6

I would be willing to buy into a crowdsourced VC fund- I give money to the fund for a slice of it, which in turn vets and invests in early stage startups. They hit a big payout, my slice becomes more valuable. The thing is, I don't want to do any work. I want someone else to do the vetting and the paperwork to invest. Obviously, they get a bigger piece of pie. Basically, I want an index fund for early stage startups.…

Angelist does that

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

#17

Post by dave_sullivan »

mindcrime wrote: post #11

Swat said the practice is still in its infancy. Wefunder, StartEngine and SeedInvest are the primary crowdfunding platforms, and many founders aren’t aware that equity fundraising is an option. This, and some people (like me) probably just got tired of waiting for the SEC to do their part, and quit paying attention to the whole thing. When the JOBS Act first passed, I was pretty excited. Then something like 3 years w…

> some people (like me) probably just got tired of waiting for the SEC to do their part

Yeah, same. Last I checked, the rules they did come out with were pretty restrictive. This article almost makes it sound easy, but if you read the full text, it basically comes down to "If you can raise money from any other source, like VC, private equity, institutional investors, or angels--do that instead because it's easier."

You can read them here: https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051...

The SEC pretty much said to congress, "Nope, we know better" and they've effectively killed the bill by dragging their feet for 5 years and then coming out with guidance that kills the intent.

Maybe there can be a new bill that takes "crowdfunding" out of the hands of the SEC? Not sure how you would word that exactly, but some kind of exception that removes their jurisdiction? Maybe even not classifying them as public companies? (SEC has no jurisdiction over private companies).

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

#18

Post by austenallred »

I'm not seeing AngelList syndicates listed here, which is probably the most obvious way for a small investor to invest in a startup; you still need someone to do the diligence and find the companies to invest in, but I could put my money into an "Index Fund" led by dozens of smaller investors, which seems to be the most logical way to do something like this.

As for direct crowdfunding, I would be comfortable angel investing if I knew someone was doing the due diligence, but no way am I putting my money into a startup blind, or spending the time to do that due diligence myself.

After that, the signaling risk and additional regulatory complexity behind this type of crowdfunding is likely a bad thing for a company, and likely mostly filled with companies that can't raise by traditional means, so you have an adverse selection problem and you're making it worse.

I think Naval and AngelList could change that, but there's quite a long ways to go.

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

#19

Post by pilingual »

I've been following the equity crowdfunding sites, and here are a few observations on why it seems disenchanting.

1. A lot of companies seem to be lifestyle and not startups; they don't plan to grow 7% a week.

2. Many companies aren't raising for the first time and are looking for a bridge or 2nd or 3rd seed round.

3. The cap on the notes is way too high.

4. Many sites incentivize by offering T-shirts and other crap. The purpose is investment so the sites should optimize around investment education and not what reward you can get for just a few hundred dollars more.

In the end it is going to be hard to even 2x overall investment. I suspect most people will just lose their money.

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

#20

Post by Tokkemon »

badloginagain wrote: post #6

I would be willing to buy into a crowdsourced VC fund- I give money to the fund for a slice of it, which in turn vets and invests in early stage startups. They hit a big payout, my slice becomes more valuable. The thing is, I don't want to do any work. I want someone else to do the vetting and the paperwork to invest. Obviously, they get a bigger piece of pie. Basically, I want an index fund for early stage startups.…

Isn't that essentially a hedge fund specializing in startups?
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