Tech Startup Crowdfunding Isn’t All It’s Cracked Up to Be • Hacker News Board

Re: Tech Startup Crowdfunding Isn’t All It’s Cracked Up to Be

#51

Post by pbreit » Tue, Dec 08, 2015, 6:50 PM UTC

tptacek wrote: post #6

I haven't heard a rationale for equity crowdfunding that makes sense to me. It sounds straightforwardly dangerous. The whole thesis for startup investing is that investors build large portfolios where the winners pay for the losers. A 2x return is a out-of-the-park home run for a retail investment in a public company, but is, mathematically, a failure for a startup investor, because only 1-2 companies in a portfolio…

I sort of agree but do see some other value beyond a wider universe of capital draw on: there's some marketing value and I think an even stronger effect is a lot more people with "skin in the game" no matter how little skin it actually is.

But for vast majority of people, I don't think they should be going in more than $1-5k per company.

Re: Tech Startup Crowdfunding Isn’t All It’s Cracked Up to Be

#52

Post by tptacek » Tue, Dec 08, 2015, 7:36 PM UTC

SilasX wrote: post #50

tptacek wrote: post #38

Earlier quoted context omitted.

I really don't think we need to concede the equivalence between restricting equity crowdfunding and outlawing gambling. Gambling is legal because, as marketed, it's an entertainment product. Equity crowdfunding is restricted because it's an investment product. Similarly, GNC can sell all sorts of useless nutritional supplements, but the FDA is all up in the business of anyone trying to sell a new medication. Reminder…

So, let's say I market the crowdfunding shares as an entertainment product. Then it could become a legal model? Relatedly, I had the idea to sell small shares of (legit, regulated) far-out-of-the-money options as lottery tickets. As investment products, they're legal, but work like lottery tickets in that you have a tiny chance of winning big (e.g. if the underlying security has a sudden, sharp shift in price).

Yes. That is, for instance, how Kickstarter works.

Re: Tech Startup Crowdfunding Isn’t All It’s Cracked Up to Be

#53

Post by jbert » Wed, Dec 09, 2015, 10:05 PM UTC

tptacek wrote: post #40

vonmoltke wrote: post #33

Earlier quoted context omitted.

> Many of those failures are capable of generating reasonable incomes for employees and founders for years, but those incomes are not proxies for investment returns. That's part of my point. The current VC model causes failures of businesses that are viable going concerns, but not growing fast enough. They know they can make more overall by pushing a subset of those business to explode at the cost of killing most of…

You're not rebutting me, but rather proving my point about how skewed definitions of "success" harm equity crowdfunding investors. There is in fact very little value of a "going concern" to outside investors. These "going concerns" are successes for people directly involved , but are not successes for investors. Consider that distributions are the normal way partners and LLC members get paid, and also a huge source o…

> your business plan must make sense to the investors.

Would locking in dividends in the business plan allow the investors to become "directly involved" and make investment in a "going concern but not a unicorn" a rational choice for an investor?