15 ms·

So far, equity crowdfunding hasn't matched the hype

79 points by jackgavigan 10y ago

ChuckMcM 10y ago
This is just data that matches previously expressed intuition. There are literally millions of un- or under- funded ideas out there that want to be companies. When you realize how much money the various public lotteries bring in every day, you can see that any idea that can skim off a nominal amount of "disposable" income from people who wish they were rich is going to do just that. This is why I have always been opposed to loosening up the regulations around crowd funding investment. At least with a gizmo you get a gizmo, but for 99.9% of the people who have crowd-funded companies (according to the article, 1 in 1000 have been sold) do not have any return at all. The part that annoys me is that it creates what is essentially a legitimate place for con artists to practice their skills, and enrich themselves, with no recourse for the investors. And as a result any "good" that might have come from allowing deserving companies to get access to a new pool of capital, you end up with a few bad apples enriching themselves and soiling the waters for everyone.
- theWatcher37 10y ago
  Crowd funding makes sense however when there is large consumer demand for a product deemed impossible or otherwise not desirable by major established players. Star Citizen is a great example of this as major publishers had no desire for a truly PC-centric next-gen space sim with very large worlds (4+ billion KM per face) and nested physics grids. Sure the end product is behind schedule but people backed it to break new ground, and that's exactly what it's doing. Something like SC would never be made under traditional funding models
  - tptacek 10y ago
    Crowdfunding for products makes a lot of sense. But this article is about equity crowdfunding, which is crowdfunding not for presales of a product, but for return on investment. That makes substantially less sense.
    - deleted 10y ago
      [deleted]
    - jjeaff 10y ago
      Well if you say so, it must be true.
  - cocktailpeanuts 10y ago
    I think you should use an example that actually ended up becoming successful in the long term (which is pretty rare). My observation with ANY type of crowdfunding campaigns is: because the founders has invested much less (both financially, socially, emotionally, etc.) in their projects, they tend to: 1. give up easily; 2. make bad decisions because they don't have much to lose 3. The fundraising is not really thought out, which results in most of them running out of money quickly and not meeting the deadlines. Imagine you're starting a company and instead of crowdfunding you decided to self-fund it until you get to product market fit. You would be extremely careful in projecting runway, and you would have done much more research before even jumping into the project. That's not the case with crowdfunding campaigns. Most crowdfunding projects are people who just throw up a web landing page with a video, hoping that it will go viral. Most of them don't even have any intention of building the thing if it doesn't go viral. This is why most campaigns are not well thought out and never make deadlines and most of them end up mediocre products, or better yet, not even ship. I can understand why there used to be regulations around this. I doubt anyone involved in these projects start out thinking they're going to con people, they start out with good intention but they bring down everyone along with them. Also because they think it's not that much of a deal for each investor (I mean, they only lose like $100 each, so what?) they can give up easily. Compare this to giving up on a company where you raised millions of dollars from your family, friends and institutional investors. You actually have responsibility to make something happen since it's not a matter of $100 investment each.
- Moshe_Silnorin 10y ago
  People have the right to make poor investments.
  - ChuckMcM 10y ago
    So is the flip side true? Do I have the right to clean out your parents bank account and get them to get a second mortgage on their house and give it to me, and then tell them, "Oh wait, it wasn't free energy after all, it was something else. Well, fail fast that's my motto. See ya!"
    - Moshe_Silnorin 10y ago
      That's fraud not crowdfunding. If it's a sincere attempt to start a business, crowdfunding seems like a fine idea. Though I agree, it is a lemon market and I wouldn't participate myself. Many people will lose money doing this, but the cost of freedom is some people will make poor investments.
      - tptacek 10y ago
        If it's practically impossible for the median consumer investor to tell the difference between a fraud and a legitimate crowdfunding opportunity, of what use is it for us to rhetorically isolate the frauds from our discussion?
        maverick_iceman 10y ago
        The point is not whether the investor can tell the difference between fraud and poor investment. It is rather whether an actual fraud was committed as determined by a court of law. Investors should do their due diligence anyway.
        tptacek 10y ago
        But that's not how publicly traded companies work. In practice, it's difficult to go public without substantial revenue, and your numbers have to be audited and disclosed through SEC-approved processes. Combined, these two factors have the effect of keeping most outright scams out of the major markets. Equity crowdfunding eliminates both of those guardrails. So it's reasonable to ask how effective they'll be (at generating returns for retail investors) given the obvious issue of fraud (and incompetence).
- aminok 10y ago
  An economy is subject to evolutionary principles. A free market industry, like a hypothetical securities sector that doesn't have authoritarian prohibitions on free exchange, would evolve to become more effective at weeding out poor offerings. A subset of the population would still continue investing in bad ideas and losing money, but that is because they are gamblers, and if it weren't equities, it'd be something else they'd be friterring their money on. This evolutionary process was seen in cryptocurrency exchanges, which became less prone to involvency and hacks over time.
  - rebuilder 10y ago
    You could just as easily say the securities sector you describe would evolve more and more efficient scammers until investing became so obviously unattractive, the flow of money simply stops. Cue financial turmoil, riots, and perhaps the rise of regulation. Just saying something would happen doesn't make it so. Do you have examples of your scenario coming true?
    - aminok 10y ago
      Scammers are fighting a losing battle against the growth in public awareness. They can only capitalize on a state of ignorance. They cannot prevent people from adopting platforms and methodologies that have developed a reputation for good performance. I already gave you an example with the cryptocurrency exchange market. Other examples include people adopting Apple products as a result of it developing a reputation for quality, and platforms like eBay, Airbnb and Uber as a result of their rating system providing a reliable indicator of vendor trustworthiness.
      - rebuilder 10y ago
        Your examples are companies that produce goods and services to consumers. We're discussing regulation of investing in such companies. Different cases. Setting that aside, I think it's far too early to say the crypto exchange market has improved. The exchanges remain pretty opaque still.
- zeroer 10y ago
  > a legitimate place for con artists As opposed to the lottery?
tptacek 10y ago
I've written before on HN about why I think equity crowdfunding is structurally disadvantaged and generally a bad idea for consumer investing: https://news.ycombinator.com/item?id=9874468#9875770 https://news.ycombinator.com/item?id=9874468#9875770
meddlepal 10y ago
Gambling with a more legitimate name.
- dublinclontarf 10y ago
  You don't think people should be allowed to gamble?
  - meddlepal 10y ago
    How did you come to that conclusion? I'm just saying let's call a spade a spade. That said I think gambling is a regressive social problem and tax that should be restricted to people that can afford to waste the money or time.
api 10y ago
An adult can also go to a casino or buy lotto tickets, activities not only statistically guaranteed to be losers on average but designed intentionally to be so. At least startup crowdfunding might fund some cool stuff. BTW why can't VC funds be traded on the stock market? Seems like that might be a better way to allow public participation. You could buy some Sequoia, A16Z, etc. and let pros make actual picks.
- deleted 10y ago
  [deleted]
- BWStearns 10y ago
  I don't think there's any actual prohibition on that. I suspect that the transparency requirements for public listing would be the barrier since venture funds trail hedge funds in secrecy by a sideways glance.
  - sah2ed 10y ago
    > ... venture funds trail hedge funds in secrecy by a sideways glance. I literally 'LOLed' reading that. That's an especially apt characterization.
- tptacek 10y ago
  VC funds could be traded on the stock market. They aren't because (a) most VC funds don't reliably beat the stock market, and (b) the ones that do aren't looking for a huge influx of new investors; they're selective about their LPs.
- GFK_of_xmaspast 10y ago
  Personally I think casinos should be illegal and lotteries much rarer.
- bjterry 10y ago
  In a way, VCs cease to be interesting when they are publicly traded. When you invest directly into a fund, the partners are promising to take your original capital and invest it in companies to dramatically increase its value. When you invest in a publicly-traded company, you are purchasing someone else's claim on the original invested capital, with whatever increase or decrease in value it has had since investment. The only way to get in on the original value creation is to participate in the IPO of the VC fund, which would still only be available to large firms and the extremely wealthy, just as it is for normal IPOs. So VCs operating publicly traded funds would not at all democratize the wealth generation. Think of it this way. If you could get an allocation in the Medallion Fund, or, say, Sequoia's fund, you are very likely to make above market returns. But if they hold an open auction for entry into their funds, no one who participates gets above market returns on a risk-adjusted basis. "Access" is what is actually giving you the above market returns, not the activities of the fund itself.
mjohn 10y ago
> Wool In The Gang, a supplier of knitting kits, was acquired for about the same price that investors put in; Crowdcube backers got a gift certificate in lieu of payment This really surprised me, but it appears that investors had a choice between receiving cash or gift certificates worth more according to a Crowdcube blog post (http://blog.crowdcube.com/2016/08/30/over-5-million-has-been-returned-to-investors/ http://blog.crowdcube.com/2016/08/30/over-5-million-has-been...): > Investors will receive their initial investment back plus a 5% return or a Wool and the Gang gift voucher, which would give them a 20% return on their investment. Nonetheless 5% return on such a risky investment doesn't seem great.
dominotw 10y ago
don't you have to be an accredited investor [1]. I certainly don't qualify to be one, i suspect lot of people don't either. 1. https://en.wikipedia.org/wiki/Accredited_investor#United_States https://en.wikipedia.org/wiki/Accredited_investor#United_Sta...
- wmf 10y ago
  The rules were changed recently so that non-accredited investors can invest in certain situations; that's what the article is about.
- icedchai 10y ago
  A million isn't what it used to be.
anton_tarasenko 10y ago
Lending Club almost went broke in the late 2000s when it experimented with real P2P lending. Defaults on the loans chosen by lenders went up, so Lending Club had to improve its underwriting model and effectively exclude the lender from the decision making process. Equity crowdfunding is the same as P2P lending but more volatile (since equity is a claim on everything what's left after paying everyone else). It's harder than lending. And we haven't seen successful examples of P2P lending yet. Another thing is, we had crowdfunding in 1929. It turned out badly, so now we have the SEC and many restrictions on equity offerings.
- akg_67 10y ago
  I believe you meant "Prosper" and not "Lending Club". LC never allowed lenders to set the rates, it was Prosper. LC started out as Facebook app for lending. Equity crowdfunding was hobbled by SEC equity crowdfunding regulations influenced by special interest groups. The restriction on max amount non-accredited investors can invest to very low amount doesn't help investors in diversifying across lot of companies and make follow up investment in winners. Also, equity crowdfunding platforms haven't done the favor to the industry by creating poor investor-unfriendly terms like no direct claim/ownership of the company, no voting rights, no access to ongoing financials and inability to do follow up investments. A better structure would have been that followed by angels/VCs.
  - pmorici 10y ago
    The fundamental problem with equity crowdfunding is that there is always going to be a huge imbalance of power between the company and the investors. In traditional VC investing it is much closer to equals and one might argue that the VC's even have the upper hand. That's why you see those investor unfriendly terms in crowdfunding, when you are just one tiny fish of 1,000 you have zero leverage. Not only do you not have anything the company needs, people with 1,000 bucks are a dime a dozen, but it's also unlikely you would go to any great cost to hold them accountable since it would cost too much to do so.
    - unclebucknasty 10y ago
tlrobinson 10y ago
Well, yesterday I heard a radio ad for an IPO... http://www.punchtvstudios.com/index.php/en/punch-tv-studios-news/120-punch-tv-studios-announces-50-million-raise-for-its-first-round-of-funding http://www.punchtvstudios.com/index.php/en/punch-tv-studios-... Not sure that was an intended consequence of the JOBS Act.
- pryelluw 10y ago
  I can't believe this is real. 50M shares at $1. Might as well be a raffle. How you make your money matters more than how much you make.
richard___ 10y ago
The less sketchy version of this is buying equity from the private market for startups that are already seeing big upward trends (e.g. Uber)
- throwawaylalala 10y ago
  How do you do this?
deleted 10y ago
[deleted]
zby 10y ago
There is an information asymmetry between the investor and the executive. The traditional laws were designed to diminish that asymmetry - crowdfunding wants to workaround these laws to make starting companies easier - but it does nothing to address the problem of information asymmetry. To be more concrete - it is very easy for the executive to extract value from the company - some of them are blocked by law, but most are about just slightly overpaying for something (most notably their own salary) - which will always be on the margin and impossible to control by laws. Traditionally there are a few models for the investor to beat the asymmetry: 1. Become involved in the company - this can work only if you have a big stake in the company (with dispersed ownership you get collective action problems) and the company is a big stake of your activities (you cannot get involved much in many companies). 2. lend not buy equity (and require collateral etc) 3. The laws for public offerings - with all the strict accounting and other ways to information disclosure 4. Investing in startups. This is a small special case where investing can be something between becoming fully involved in the company operations and being a small shareholder of a public company. Startups goal is to grow a 100 times or die - so small continues extractions by the executives are ruled out. I think most crowdfunder proponents think it should fit in 4 - but probably the difference between 4 and 1 is not that big. Update: Just after posting this I realized that the information asymmetry is just one aspect of this - and it really is about principal-agent problem.
peternilson 10y ago
Of the few success stories listed they mention Camden Brewery getting bought for double the amount that online investors put in.. So the online investors got double their money as a payout? If that is the case I don't even know how that count as a success. If investors knew at the time the potential payouts were something like 2:1 they should have stay well clear of that bet.
aminok 10y ago
While equity crowdfunding may not have matched the hype, technology crowdfunding where people provide capital in exchange for a cryptographic claim on a digital token that provides (or in the case of preorders, may or may not one day provide) functionality within a distributed blockchain-based platform, is exploding in Ethereum.
- lsseckman 10y ago
  Can you provide examples here?
  - aminok 10y ago
    In the Wikipedia page on highest funded crowdfunding projects, you can find six that are Ethereum based: https://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects https://en.wikipedia.org/wiki/List_of_highest_funded_crowdfu... Many more are in the works.
samnwa 10y ago
The problem is that companies doing crowdfunding still have too much leverage. They set the valuation, the terms, etc. A 3rd party should set the valuation and it should likely be at a discount to traditional VCs.
deleted 10y ago
[deleted]

79 points by jackgavigan 10y ago

This is just data that matches previously expressed intuition. There are literally millions of un- or under- funded ideas out there that want to be companies. When you realize how much money the various public lotteries bring in every day, you can see that any idea that can skim off a nominal amount of "disposable" income from people who wish they were rich is going to do just that. This is why I have always been opposed to loosening up the regulations around crowd funding investment. At least with a gizmo you get a gizmo, but for 99.9% of the people who have crowd-funded companies (according to the article, 1 in 1000 have been sold) do not have any return at all. The part that annoys me is that it creates what is essentially a legitimate place for con artists to practice their skills, and enrich themselves, with no recourse for the investors. And as a result any "good" that might have come from allowing deserving companies to get access to a new pool of capital, you end up with a few bad apples enriching themselves and soiling the waters for everyone.

theWatcher37 10y ago
Crowd funding makes sense however when there is large consumer demand for a product deemed impossible or otherwise not desirable by major established players. Star Citizen is a great example of this as major publishers had no desire for a truly PC-centric next-gen space sim with very large worlds (4+ billion KM per face) and nested physics grids. Sure the end product is behind schedule but people backed it to break new ground, and that's exactly what it's doing. Something like SC would never be made under traditional funding models
- tptacek 10y ago
  Crowdfunding for products makes a lot of sense. But this article is about equity crowdfunding, which is crowdfunding not for presales of a product, but for return on investment. That makes substantially less sense.
  - deleted 10y ago
    [deleted]
  - jjeaff 10y ago
    Well if you say so, it must be true.
- cocktailpeanuts 10y ago
  I think you should use an example that actually ended up becoming successful in the long term (which is pretty rare). My observation with ANY type of crowdfunding campaigns is: because the founders has invested much less (both financially, socially, emotionally, etc.) in their projects, they tend to: 1. give up easily; 2. make bad decisions because they don't have much to lose 3. The fundraising is not really thought out, which results in most of them running out of money quickly and not meeting the deadlines. Imagine you're starting a company and instead of crowdfunding you decided to self-fund it until you get to product market fit. You would be extremely careful in projecting runway, and you would have done much more research before even jumping into the project. That's not the case with crowdfunding campaigns. Most crowdfunding projects are people who just throw up a web landing page with a video, hoping that it will go viral. Most of them don't even have any intention of building the thing if it doesn't go viral. This is why most campaigns are not well thought out and never make deadlines and most of them end up mediocre products, or better yet, not even ship. I can understand why there used to be regulations around this. I doubt anyone involved in these projects start out thinking they're going to con people, they start out with good intention but they bring down everyone along with them. Also because they think it's not that much of a deal for each investor (I mean, they only lose like $100 each, so what?) they can give up easily. Compare this to giving up on a company where you raised millions of dollars from your family, friends and institutional investors. You actually have responsibility to make something happen since it's not a matter of $100 investment each.
Moshe_Silnorin 10y ago
People have the right to make poor investments.
- ChuckMcM 10y ago
  So is the flip side true? Do I have the right to clean out your parents bank account and get them to get a second mortgage on their house and give it to me, and then tell them, "Oh wait, it wasn't free energy after all, it was something else. Well, fail fast that's my motto. See ya!"
  - Moshe_Silnorin 10y ago
    That's fraud not crowdfunding. If it's a sincere attempt to start a business, crowdfunding seems like a fine idea. Though I agree, it is a lemon market and I wouldn't participate myself. Many people will lose money doing this, but the cost of freedom is some people will make poor investments.
    - tptacek 10y ago
      If it's practically impossible for the median consumer investor to tell the difference between a fraud and a legitimate crowdfunding opportunity, of what use is it for us to rhetorically isolate the frauds from our discussion?
      - maverick_iceman 10y ago
        The point is not whether the investor can tell the difference between fraud and poor investment. It is rather whether an actual fraud was committed as determined by a court of law. Investors should do their due diligence anyway.
        tptacek 10y ago
        But that's not how publicly traded companies work. In practice, it's difficult to go public without substantial revenue, and your numbers have to be audited and disclosed through SEC-approved processes. Combined, these two factors have the effect of keeping most outright scams out of the major markets. Equity crowdfunding eliminates both of those guardrails. So it's reasonable to ask how effective they'll be (at generating returns for retail investors) given the obvious issue of fraud (and incompetence).
aminok 10y ago
An economy is subject to evolutionary principles. A free market industry, like a hypothetical securities sector that doesn't have authoritarian prohibitions on free exchange, would evolve to become more effective at weeding out poor offerings. A subset of the population would still continue investing in bad ideas and losing money, but that is because they are gamblers, and if it weren't equities, it'd be something else they'd be friterring their money on. This evolutionary process was seen in cryptocurrency exchanges, which became less prone to involvency and hacks over time.
- rebuilder 10y ago
  You could just as easily say the securities sector you describe would evolve more and more efficient scammers until investing became so obviously unattractive, the flow of money simply stops. Cue financial turmoil, riots, and perhaps the rise of regulation. Just saying something would happen doesn't make it so. Do you have examples of your scenario coming true?
  - aminok 10y ago
    Scammers are fighting a losing battle against the growth in public awareness. They can only capitalize on a state of ignorance. They cannot prevent people from adopting platforms and methodologies that have developed a reputation for good performance. I already gave you an example with the cryptocurrency exchange market. Other examples include people adopting Apple products as a result of it developing a reputation for quality, and platforms like eBay, Airbnb and Uber as a result of their rating system providing a reliable indicator of vendor trustworthiness.
    - rebuilder 10y ago
      Your examples are companies that produce goods and services to consumers. We're discussing regulation of investing in such companies. Different cases. Setting that aside, I think it's far too early to say the crypto exchange market has improved. The exchanges remain pretty opaque still.
zeroer 10y ago
> a legitimate place for con artists As opposed to the lottery?

tptacek 10y ago

I've written before on HN about why I think equity crowdfunding is structurally disadvantaged and generally a bad idea for consumer investing: https://news.ycombinator.com/item?id=9874468#9875770 https://news.ycombinator.com/item?id=9874468#9875770

meddlepal 10y ago

Gambling with a more legitimate name.

dublinclontarf 10y ago
You don't think people should be allowed to gamble?
- meddlepal 10y ago
  How did you come to that conclusion? I'm just saying let's call a spade a spade. That said I think gambling is a regressive social problem and tax that should be restricted to people that can afford to waste the money or time.

api 10y ago

An adult can also go to a casino or buy lotto tickets, activities not only statistically guaranteed to be losers on average but designed intentionally to be so. At least startup crowdfunding might fund some cool stuff. BTW why can't VC funds be traded on the stock market? Seems like that might be a better way to allow public participation. You could buy some Sequoia, A16Z, etc. and let pros make actual picks.

deleted 10y ago
[deleted]
BWStearns 10y ago
I don't think there's any actual prohibition on that. I suspect that the transparency requirements for public listing would be the barrier since venture funds trail hedge funds in secrecy by a sideways glance.
- sah2ed 10y ago
  > ... venture funds trail hedge funds in secrecy by a sideways glance. I literally 'LOLed' reading that. That's an especially apt characterization.
tptacek 10y ago
VC funds could be traded on the stock market. They aren't because (a) most VC funds don't reliably beat the stock market, and (b) the ones that do aren't looking for a huge influx of new investors; they're selective about their LPs.
GFK_of_xmaspast 10y ago
Personally I think casinos should be illegal and lotteries much rarer.
bjterry 10y ago
In a way, VCs cease to be interesting when they are publicly traded. When you invest directly into a fund, the partners are promising to take your original capital and invest it in companies to dramatically increase its value. When you invest in a publicly-traded company, you are purchasing someone else's claim on the original invested capital, with whatever increase or decrease in value it has had since investment. The only way to get in on the original value creation is to participate in the IPO of the VC fund, which would still only be available to large firms and the extremely wealthy, just as it is for normal IPOs. So VCs operating publicly traded funds would not at all democratize the wealth generation. Think of it this way. If you could get an allocation in the Medallion Fund, or, say, Sequoia's fund, you are very likely to make above market returns. But if they hold an open auction for entry into their funds, no one who participates gets above market returns on a risk-adjusted basis. "Access" is what is actually giving you the above market returns, not the activities of the fund itself.

mjohn 10y ago

> Wool In The Gang, a supplier of knitting kits, was acquired for about the same price that investors put in; Crowdcube backers got a gift certificate in lieu of payment This really surprised me, but it appears that investors had a choice between receiving cash or gift certificates worth more according to a Crowdcube blog post (http://blog.crowdcube.com/2016/08/30/over-5-million-has-been-returned-to-investors/ http://blog.crowdcube.com/2016/08/30/over-5-million-has-been...): > Investors will receive their initial investment back plus a 5% return or a Wool and the Gang gift voucher, which would give them a 20% return on their investment. Nonetheless 5% return on such a risky investment doesn't seem great.

dominotw 10y ago

don't you have to be an accredited investor [1]. I certainly don't qualify to be one, i suspect lot of people don't either. 1. https://en.wikipedia.org/wiki/Accredited_investor#United_States https://en.wikipedia.org/wiki/Accredited_investor#United_Sta...

wmf 10y ago
The rules were changed recently so that non-accredited investors can invest in certain situations; that's what the article is about.
icedchai 10y ago
A million isn't what it used to be.

anton_tarasenko 10y ago

Lending Club almost went broke in the late 2000s when it experimented with real P2P lending. Defaults on the loans chosen by lenders went up, so Lending Club had to improve its underwriting model and effectively exclude the lender from the decision making process. Equity crowdfunding is the same as P2P lending but more volatile (since equity is a claim on everything what's left after paying everyone else). It's harder than lending. And we haven't seen successful examples of P2P lending yet. Another thing is, we had crowdfunding in 1929. It turned out badly, so now we have the SEC and many restrictions on equity offerings.

akg_67 10y ago
I believe you meant "Prosper" and not "Lending Club". LC never allowed lenders to set the rates, it was Prosper. LC started out as Facebook app for lending. Equity crowdfunding was hobbled by SEC equity crowdfunding regulations influenced by special interest groups. The restriction on max amount non-accredited investors can invest to very low amount doesn't help investors in diversifying across lot of companies and make follow up investment in winners. Also, equity crowdfunding platforms haven't done the favor to the industry by creating poor investor-unfriendly terms like no direct claim/ownership of the company, no voting rights, no access to ongoing financials and inability to do follow up investments. A better structure would have been that followed by angels/VCs.
- pmorici 10y ago
  The fundamental problem with equity crowdfunding is that there is always going to be a huge imbalance of power between the company and the investors. In traditional VC investing it is much closer to equals and one might argue that the VC's even have the upper hand. That's why you see those investor unfriendly terms in crowdfunding, when you are just one tiny fish of 1,000 you have zero leverage. Not only do you not have anything the company needs, people with 1,000 bucks are a dime a dozen, but it's also unlikely you would go to any great cost to hold them accountable since it would cost too much to do so.
  - unclebucknasty 10y ago

tlrobinson 10y ago

Well, yesterday I heard a radio ad for an IPO... http://www.punchtvstudios.com/index.php/en/punch-tv-studios-news/120-punch-tv-studios-announces-50-million-raise-for-its-first-round-of-funding http://www.punchtvstudios.com/index.php/en/punch-tv-studios-... Not sure that was an intended consequence of the JOBS Act.

pryelluw 10y ago
I can't believe this is real. 50M shares at $1. Might as well be a raffle. How you make your money matters more than how much you make.

richard___ 10y ago

The less sketchy version of this is buying equity from the private market for startups that are already seeing big upward trends (e.g. Uber)

throwawaylalala 10y ago
How do you do this?

deleted 10y ago

[deleted]

zby 10y ago

There is an information asymmetry between the investor and the executive. The traditional laws were designed to diminish that asymmetry - crowdfunding wants to workaround these laws to make starting companies easier - but it does nothing to address the problem of information asymmetry. To be more concrete - it is very easy for the executive to extract value from the company - some of them are blocked by law, but most are about just slightly overpaying for something (most notably their own salary) - which will always be on the margin and impossible to control by laws. Traditionally there are a few models for the investor to beat the asymmetry: 1. Become involved in the company - this can work only if you have a big stake in the company (with dispersed ownership you get collective action problems) and the company is a big stake of your activities (you cannot get involved much in many companies). 2. lend not buy equity (and require collateral etc) 3. The laws for public offerings - with all the strict accounting and other ways to information disclosure 4. Investing in startups. This is a small special case where investing can be something between becoming fully involved in the company operations and being a small shareholder of a public company. Startups goal is to grow a 100 times or die - so small continues extractions by the executives are ruled out. I think most crowdfunder proponents think it should fit in 4 - but probably the difference between 4 and 1 is not that big. Update: Just after posting this I realized that the information asymmetry is just one aspect of this - and it really is about principal-agent problem.

peternilson 10y ago

Of the few success stories listed they mention Camden Brewery getting bought for double the amount that online investors put in.. So the online investors got double their money as a payout? If that is the case I don't even know how that count as a success. If investors knew at the time the potential payouts were something like 2:1 they should have stay well clear of that bet.

aminok 10y ago

While equity crowdfunding may not have matched the hype, technology crowdfunding where people provide capital in exchange for a cryptographic claim on a digital token that provides (or in the case of preorders, may or may not one day provide) functionality within a distributed blockchain-based platform, is exploding in Ethereum.

lsseckman 10y ago
Can you provide examples here?
- aminok 10y ago
  In the Wikipedia page on highest funded crowdfunding projects, you can find six that are Ethereum based: https://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects https://en.wikipedia.org/wiki/List_of_highest_funded_crowdfu... Many more are in the works.

samnwa 10y ago

The problem is that companies doing crowdfunding still have too much leverage. They set the valuation, the terms, etc. A 3rd party should set the valuation and it should likely be at a discount to traditional VCs.

deleted 10y ago

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