Equity crowdfunding is doomed as an asset class • Hacker News Board

Re: Equity crowdfunding is doomed as an asset class

#21

Post by vasilipupkin » Thu, Aug 29, 2013, 2:00 AM UTC

jbreinlinger wrote: post #19

riggins wrote: post #6

Earlier quoted context omitted.

yep. It's also worth making one of the key assumptions of the post explicit. the author says If the funding platforms cannot attract the best deals, then investors will not make any money. the key assumption that's baked into that statement is that everyone universally recognizes the 'best deals'. Of course that's not certain. The wisdom of the crowd may be better than VCs at recognizing the 'best deals'. I can easil…

>> the key assumption that's baked into that statement is that everyone universally recognizes the 'best deals'. Of course that's not certain. The wisdom of the crowd may be better than VCs at recognizing the 'best deals'. I can easily imagine 'best deals' that the crowd identifies that VCs wouldn't fund. Wholeheartedly agree with your statement - but keep in mind that VCs typically get access to way more information…

Yet VC industry as a whole has been underperforming. http://www.avc.com/a_vc/2013/02/venture-capital-returns.html

My guess is this is because most VCs cannot really discern trends, predict the future, etc - even though that is what they claim to do. ( The best ones can, to some extent )

So I would guess, based on this data, that crowdfunding equity will perform just as well as average VC or better, net of fees

Re: Equity crowdfunding is doomed as an asset class

#22

Post by Daniel_Newby » Thu, Aug 29, 2013, 2:05 AM UTC

fixxer wrote: post #14

gbelote wrote: post #11

Cofounder of Wefunder here. I disagree with the author. He makes a few assumptions that I believe to be false and makes a strong conclusion that crowdinvesting as a whole is doomed to low quality startups. Some points of disagreement: - Startups choose either crowd-funding -or- VC. It's not VC or crowd. Nor is it angel or crowd. High quality startups can raise traditional seed rounds and allocate a slice of that roun…

Are blue sky laws no longer applicable?

They seem to be going away. Restrict one asset class amd people just find a different rat hole to fling their money down.

Re: Equity crowdfunding is doomed as an asset class

#23

Post by ganeumann » Thu, Aug 29, 2013, 2:08 AM UTC

mediaman wrote: post #5

A lot of folks are making ad hominem arguments that because it is a VC arguing against crowd funding, he must be wrong because of who he is. Let's see if we can focus on the reasons why his arguments are wrong, not just that he is a VC. Valid reasons why he may be wrong: - He argues that good startups have no trouble raising VC. On the contrary, many VCs have poor ability to determine what is a good investment, and m…

VCs are (as a class) not particularly good at identifying quality

The question is: why is that? Having been an investor and an entrepreneur, I certainly agree that VCs miss many good companies and fund many bad ones. But that's not for lack of trying, expertise, time spent, or motivation.

If you think that crowdfunding will do better than VCs (as a class), then you must either believe that the crowd has some ability that VCs can't develop (and what is that and why can't VCs develop it?) or that the crowd will simply fund everything regardless of quality.

I personally don't believe the first and am not sure the second is the best answer.

Personally, I think crowdfunding--especially as AngelList does it--could very well be the future of the seed/early A round. I don't think the crowd will get better returns than VCs, but I also think the crowd won't care very much about okay-but-not-great returns; that may be the reason it works.

Re: Equity crowdfunding is doomed as an asset class

#24

Post by wmf » Thu, Aug 29, 2013, 2:08 AM UTC

gbelote wrote: post #11

Cofounder of Wefunder here. I disagree with the author. He makes a few assumptions that I believe to be false and makes a strong conclusion that crowdinvesting as a whole is doomed to low quality startups. Some points of disagreement: - Startups choose either crowd-funding -or- VC. It's not VC or crowd. Nor is it angel or crowd. High quality startups can raise traditional seed rounds and allocate a slice of that roun…

Zenefits ... raised part of their round on Wefunder even though they had tons of investor interest after Demo Day.

Why?

Re: Equity crowdfunding is doomed as an asset class

#25

Post by dbuder » Thu, Aug 29, 2013, 2:10 AM UTC

Well it's not an asset class at the moment, it might get there one day but if you engage in it for a return you are an idiot.

Re: Equity crowdfunding is doomed as an asset class

#26

Post by minor_nitwit » Thu, Aug 29, 2013, 2:24 AM UTC

minimax wrote: post #16

This is probably a stupid question, but how does a crowd funded equity round actually work? If I'm trying to raise $1MM for a 10% equity stake (picking number out of the air), is it a first come first served thing (as soon as we reach $1MM the round closes), or is there an auction where investors can place bids? Also is there any secondary market once you take a position in one of these companies?

It will depend upon how the sale is set up. Anything is theoretically possible, but the biggest obstacles are SEC regulations put in place to protect small 'retail investors' from 'speculative' products.

Re: Equity crowdfunding is doomed as an asset class

#27

Post by jchimney » Thu, Aug 29, 2013, 2:50 AM UTC

There will always be fans of a product willing to put a few bucks down to see it happen. Not going away

Re: Equity crowdfunding is doomed as an asset class

#28

Post by kansface » Thu, Aug 29, 2013, 4:07 AM UTC

vasilipupkin wrote: post #21

jbreinlinger wrote: post #19

Earlier quoted context omitted.

>> the key assumption that's baked into that statement is that everyone universally recognizes the 'best deals'. Of course that's not certain. The wisdom of the crowd may be better than VCs at recognizing the 'best deals'. I can easily imagine 'best deals' that the crowd identifies that VCs wouldn't fund. Wholeheartedly agree with your statement - but keep in mind that VCs typically get access to way more information…

Yet VC industry as a whole has been underperforming. http://www.avc.com/a_vc/2013/02/venture-capital-returns.html My guess is this is because most VCs cannot really discern trends, predict the future, etc - even though that is what they claim to do. ( The best ones can, to some extent ) So I would guess, based on this data, that crowdfunding equity will perform just as well as average VC or better, net of fees

The best VCs just have good deal flow. IE, the wildly successful startups go to them first. I don't think the VCs with great returns are better at guessing.