5 ms·

LPs investing in startups directly, followed by retail investors (JOBS act). If you thought we were already in a bubble, hang on to your seats, it's about to

by fra 11y ago

LPs investing in startups directly, followed by retail investors (JOBS act). If you thought we were already in a bubble, hang on to your seats, it's about to get much worse.

danieltillett 11y ago
Well someone has to be left holding the bag. I worry that done badly this will turn a generation off investing in tech start-ups.
- 7Figures2Commas 11y ago
  Please don't worry. There will be no shortage of people who believe next time will be different. That's the beauty of the cycle. As you near the end, some subset of the people who swore they'd never be left holding the bag again become bag holders.
  - danieltillett 11y ago
    Yes people seem to have short memories these days. After 1929 it took a long time for people to think about investing in the stock market again. What is probably more of an issue is that wide-scale bag holding will trigger new regulations that will make it much hard for startups to raise money in the future. Even if people want to invest it might prove impossible to raise money in practice.
    - refurb 11y ago
      This actually happened in biotech in the last 15 years. Everyone bought into the promise of genomics and it all blew up (not genomics itself, but the idea you can make oodles of cash from it). The biotech IPO window was almost closed from ~2000 to 2012-2013. Look at it now! Companies with nothing more than a promise raising $150M+ at IPO. I haven't kept track, but it wouldn't surprise me if close to 100 biotechs have IPOed in the last 2-3 years.
      - adventured 11y ago
        Pretty close. At least 121 from Jan 2013, to Feb 2015: http://www.forbes.com/sites/brucebooth/2015/03/20/biotech-ipo-performance-discerning-market-or-rising-tide/ http://www.forbes.com/sites/brucebooth/2015/03/20/biotech-ip... And the Nasdaq biotech index (NBI) has skyrocketed, from 1,000 four years ago, to a recent peak of 4,000 before the plunge (after having barely moved for a decade previously).
      - danieltillett 11y ago
        Don’t I know this. As someone who runs a genomics company that started in 1999 I have been through this whole experience. When I started people were literally giving me money for free and by 2001 you could not raise a cent even if you were profitable.
  - refurb 11y ago
    The cycle of getting burned than getting burned again is shorter than you'd think. Just look at the housing market in some US regions. "Come on! Housing will never go down here!" Apparently most people's memories don't even go back as far as 2008.
- cperciva 11y ago
  I don't worry about people being turned off investing in startups. I think that would be a very good outcome, both for retail investors (they should be investing in broad indices, not picking individual sectors or stocks) and for the tech sector (less cash floating around = less talent being wasted at companies which would immediately shut down in less bubbly times).
hkmurakami 11y ago
Well for the time being, retail is likely going to be scarred from the correction in public markets that we are in the midst of.
downandout 11y ago
>If you thought we were already in a bubble, hang on to your seats, it's about to get much worse. "Worse" for whom? It may be worse for investors because valuations may increase, but overall having more money in the startup ecosystem, funding companies that may make the world a better place, isn't the worst possible thing to have.
- idlewords 11y ago
  It has a distorting effect on the industry, on tech culture, and on the communities that we live in. Easy money doesn't bring out the best in people.
  - bayesianhorse 11y ago
    Difficult or no money doesn't do that either.
api 11y ago
The "worse" value judgement is debatable. LPs are high risk and have deep pockets, so I'm not worried about them. As far as retail investors go, I am a bit concerned there but on the other hand anyone can blow money on lotto tickets or casinos and with those you're statistically guaranteed to lose. I would like to see some requirement that retail investors are presented with a big fat warning that reminds them that this is a high risk investment and that they could lose all their capital. Granted they should know that, but people are biased and often forget. Of course lotto tickets don't come with such warnings, so hey maybe it's fair. My biggest concern isn't so much with the investor side but with what effect this might have on the signal/noise ratio in the startup world. I fully expect to see a ton of scammy shallow "companies" trolling for funds, and it'll make it harder on those with more substance than flash.
- fra 11y ago
  Worse because unsophisticated investors ("family offices" and "moms and pops") will have unrealistic expectations. Those expectations will have to meet reality sooner or later, and when that happens: * Life savings will be wiped out * Liquidity will snap back for startups * Many otherwise healthy companies will die It will be the sub-prime equity crisis.
  - api 11y ago
    That's why I'm in favor of some level of standards on disclosure and some standard warning for these kinds of investments. Another possibility would be a waiting period. People are impulsive, so maybe you have to wait 72 hours from signaling serious intent to actually making an investment. That would help prevent casino-think. I don't think it's wrong to open more investments to more people, but I'm also a bit wary of it being a total free for all shitshow.

by fra 11y ago

LPs investing in startups directly, followed by retail investors (JOBS act). If you thought we were already in a bubble, hang on to your seats, it's about to get much worse.

danieltillett 11y ago

Well someone has to be left holding the bag. I worry that done badly this will turn a generation off investing in tech start-ups.

7Figures2Commas 11y ago
Please don't worry. There will be no shortage of people who believe next time will be different. That's the beauty of the cycle. As you near the end, some subset of the people who swore they'd never be left holding the bag again become bag holders.
- danieltillett 11y ago
  Yes people seem to have short memories these days. After 1929 it took a long time for people to think about investing in the stock market again. What is probably more of an issue is that wide-scale bag holding will trigger new regulations that will make it much hard for startups to raise money in the future. Even if people want to invest it might prove impossible to raise money in practice.
  - refurb 11y ago
    This actually happened in biotech in the last 15 years. Everyone bought into the promise of genomics and it all blew up (not genomics itself, but the idea you can make oodles of cash from it). The biotech IPO window was almost closed from ~2000 to 2012-2013. Look at it now! Companies with nothing more than a promise raising $150M+ at IPO. I haven't kept track, but it wouldn't surprise me if close to 100 biotechs have IPOed in the last 2-3 years.
    - adventured 11y ago
      Pretty close. At least 121 from Jan 2013, to Feb 2015: http://www.forbes.com/sites/brucebooth/2015/03/20/biotech-ipo-performance-discerning-market-or-rising-tide/ http://www.forbes.com/sites/brucebooth/2015/03/20/biotech-ip... And the Nasdaq biotech index (NBI) has skyrocketed, from 1,000 four years ago, to a recent peak of 4,000 before the plunge (after having barely moved for a decade previously).
    - danieltillett 11y ago
      Don’t I know this. As someone who runs a genomics company that started in 1999 I have been through this whole experience. When I started people were literally giving me money for free and by 2001 you could not raise a cent even if you were profitable.
- refurb 11y ago
  The cycle of getting burned than getting burned again is shorter than you'd think. Just look at the housing market in some US regions. "Come on! Housing will never go down here!" Apparently most people's memories don't even go back as far as 2008.
cperciva 11y ago
I don't worry about people being turned off investing in startups. I think that would be a very good outcome, both for retail investors (they should be investing in broad indices, not picking individual sectors or stocks) and for the tech sector (less cash floating around = less talent being wasted at companies which would immediately shut down in less bubbly times).

hkmurakami 11y ago

Well for the time being, retail is likely going to be scarred from the correction in public markets that we are in the midst of.

downandout 11y ago

>If you thought we were already in a bubble, hang on to your seats, it's about to get much worse. "Worse" for whom? It may be worse for investors because valuations may increase, but overall having more money in the startup ecosystem, funding companies that may make the world a better place, isn't the worst possible thing to have.

idlewords 11y ago
It has a distorting effect on the industry, on tech culture, and on the communities that we live in. Easy money doesn't bring out the best in people.
- bayesianhorse 11y ago
  Difficult or no money doesn't do that either.

api 11y ago

The "worse" value judgement is debatable. LPs are high risk and have deep pockets, so I'm not worried about them. As far as retail investors go, I am a bit concerned there but on the other hand anyone can blow money on lotto tickets or casinos and with those you're statistically guaranteed to lose. I would like to see some requirement that retail investors are presented with a big fat warning that reminds them that this is a high risk investment and that they could lose all their capital. Granted they should know that, but people are biased and often forget. Of course lotto tickets don't come with such warnings, so hey maybe it's fair. My biggest concern isn't so much with the investor side but with what effect this might have on the signal/noise ratio in the startup world. I fully expect to see a ton of scammy shallow "companies" trolling for funds, and it'll make it harder on those with more substance than flash.

fra 11y ago
Worse because unsophisticated investors ("family offices" and "moms and pops") will have unrealistic expectations. Those expectations will have to meet reality sooner or later, and when that happens: * Life savings will be wiped out * Liquidity will snap back for startups * Many otherwise healthy companies will die It will be the sub-prime equity crisis.
- api 11y ago
  That's why I'm in favor of some level of standards on disclosure and some standard warning for these kinds of investments. Another possibility would be a waiting period. People are impulsive, so maybe you have to wait 72 hours from signaling serious intent to actually making an investment. That would help prevent casino-think. I don't think it's wrong to open more investments to more people, but I'm also a bit wary of it being a total free for all shitshow.