If Crowdfunding is the New Day Trading, Look Out • Hacker News Board

Re: If Crowdfunding is the New Day Trading, Look Out

#31

Post by cowsandmilk » Fri, Sep 27, 2013, 7:14 PM UTC

chamblin wrote: post #23

This disdain for "common" investment is over the top. A much bigger concern than the potential for poor decisions by individuals is the creation of financial instruments that are, by government fiat, only available to an elite group of institutional investors and the otherwise-wealthy.

> This disdain for "common" investment is over the top.

Completely agree. After pointing out that the institutional investors are clueless and lose to the market, he then says that only the little guys should stay out of the startup space. Honestly, many of the reliable indicators for Venture Capital are available to the public (eg past success). No reason to keep the little guy out.

Re: If Crowdfunding is the New Day Trading, Look Out

#32

Post by cowsandmilk » Fri, Sep 27, 2013, 7:20 PM UTC

cowsandmilk wrote: post #31

chamblin wrote: post #23

This disdain for "common" investment is over the top. A much bigger concern than the potential for poor decisions by individuals is the creation of financial instruments that are, by government fiat, only available to an elite group of institutional investors and the otherwise-wealthy.

> This disdain for "common" investment is over the top. Completely agree. After pointing out that the institutional investors are clueless and lose to the market, he then says that only the little guys should stay out of the startup space. Honestly, many of the reliable indicators for Venture Capital are available to the public (eg past success). No reason to keep the little guy out.

Expanding a bit, HBR argues:

> pouring more capital into VC has historically led to lower returns

Why this is unexpected is beyond me. More money should mean more competition. He's essentially arguing that we should allow VCs to keep exclusivity on the market because historically their returns have gone down as exclusivity has decreased.

There may be argument that the startup market may have more scams than the public markets and so on, but the author at HBR is not arguing that. He's arguing that a natural function of opening up a market is a bad thing because it provides less returns to the existing players.

Re: If Crowdfunding is the New Day Trading, Look Out

#33

Post by wmf » Fri, Sep 27, 2013, 7:32 PM UTC

pcowans wrote: post #30

breckinloggins wrote: post #10

The nice thing about Crowdfunding is that, like traditional trading, motivations vary. For example, I recently backed the Infrared Human Vision study on Microryza [1] simply because it sounded like cool research. I backed the Ubuntu Edge even though I knew it would most likely fail to reach its funding goals because I wanted to send a message that there's a market for a "pocket to desktop" convergence device. I sent…

From the article: "To be clear, Malik isn’t talking about Kickstarter where funders make a donation that acts like a pre-order. He’s talking about the public buying stock in private companies, something that may soon be legal thanks to the JOBS Act..."

I think breckinloggins's point was that people may be willing to make equity investments for reasons other than profit.

(Now I'm wondering whether startups will be allowed to offer rewards in exchange for funding, leading to more "X is not a store" backlash.)

Re: If Crowdfunding is the New Day Trading, Look Out

#34

Post by abalone » Fri, Sep 27, 2013, 8:06 PM UTC

I'm a little surprised at HBS, this is not a very well thought out commentary.

People like to say startup investments are "like betting" and it's true to a certain degree -- it's very risky and odds are against you. But what separates it from more popular forms of betting (casinos, lotteries) is...

You have to hold on to your investment for many years.

The timeframe on returns is a huge difference between day trading and early stage investments. Day trading was a very close approximation of off-track betting. It had similar psychological dynamics driving it. You win some, you lose some, you keep coming back for more, you think you can beat the odds tomorrow if you just get some money together.

Those addictive dynamics don't play as well over a timeframe of 5-10 years. It's like buying a lottery ticket for 2020. Not as addictive.

I'm not saying there are no downsides to unsophisticated investing. Just that day trading is a poor comparison.