Another reason for Small Investors to stay away is the senseless tax hassle. I didn't invest because I had any ambition to get wealthy, I just wanted to "give back" and help some ambitious young entrepreneurs get started. Now I'm filing complicated tax forms for money I'll never see because those young companies made 10$ in interest from the money sitting in a bank.
U.S. Startups Fail to Attract Expected Crowd of Small Investors
141–150 of 168 posts
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#142Earlier quoted context omitted.
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.
How about a terms-based knowledge test, like getting a driver's license? The US loves standardized testing!
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#143Crowdfunding 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…
I can see this working for a few niche markets that fall in between the gaps of kickstarter and VC. One market that immediately comes to mind is microbreweries. Small to midsize microbreweries have pretty good margins because they are usually selling their beer directly out of their taproom (as opposed to distributing their product, which results in a few other people taking a cut of your sales). But expanding to the next size up can be fairly capital intensive (relative to the size of the business) and there are not a lot of ways to finance that. My guess is it's a lot of friends and family money, or 'scraping the barrels' for cash in the company. Some breweries have managed it through kickstarter. But kickstarter seems to work better for product focused companies with a pre-order dynamic.
The advantage of crowdfunding would be that you can offer some upside to your supporters (M&A[1] or maybe dividends?). Assuming you are already established and are trying to take it to the next level, you can generate support for your crowdfunding campaign by advertising to your existing clientele. They already have a connection to the business and that can also result in creating a small army of brand ambassadors.
There are probably a few other niche businesses out there that could follow this playbook. Use existing local support/community to help fund expansion. One possible hang up is that there would need to be a path to an exit or some type of return. With the microbrewery market, as mentioned below, M&A is happening, but for other markets that don't have that, I would be interested to know if dividends are a possibility.
[1] There is a decent amount of M&A activity going on as the major beer companies try to maintain market share as the micros take over.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#144I looked into investing a small amount in crowdfunding, but there are very few platforms offering it and the companies seemed to be raising money at overpriced valuations. It would be nice if crowdfunding could grow, since ordinary people could get a share of large growth and they could also offer certain unique benefits for a company the raising money (e.g. help with marketing).
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#145This 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…
I don't really understand this logic. If you are trying to determine which company (all else being equal) is more likely to be successful, would you not take the company that has validation already from a population that is more likely going to be using whatever it is that you are pitching? Essentially you are saying that getting funded by a big name is more indicative of success than consumers who will be using the service/product/etc.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#146[deleted]
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#147Crowdfunding 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…
>"VCs compete for access to dealflow."
I am unfamiliar with this term, can you say what that is?
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#148Crowdfunding 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…
>"VCs compete for access to dealflow." I am unfamiliar with this term, can you say what that is?
In this context, dealflow equates to opportunities to invest in startups. To have 'dealflow' means you've got access to a pipeline of promising, stage-appropriate startups looking for capital.
I believe in other contexts it simply refers to being in on deals; I think I've heard it elsewhere, too.
[Edited to add second paragraph, generalizing a little bit.]
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#149Earlier quoted context omitted.
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.
How about a terms-based knowledge test, like getting a driver's license? The US loves standardized testing!
Driver testing is run at the state level. The US hates federal organization.
Re: U.S. Startups Fail to Attract Expected Crowd of Small Investors
#150Earlier quoted context omitted.
Why do you say it would be high-risk?
Early stage startups are high-risk, due to how many early stage startups fail. A collection of early stage startups inherits the risk. Basically you're hoping that a single success covers the losses of the failed startups in its cohort.
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