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Why not to create a massive crowd-funded or publicly traded VC fund? (as opposed to crowd-funding for a single startup) Thus more people could expose themselve

Why not to create a massive crowd-funded or publicly traded VC fund? (as opposed to crowd-funding for a single startup) Thus more people could expose themselves to VC but in a diversified manner. Also, more capital would be available for startups.

tptacek 9y ago
Someone has to get paid to do that, so now the premise of equity crowdfunding has been reduced to: in the best case, you can crowdfund another venture capital firm, and pay a tax out of your returns that wealthy investors don't have to pay. And, again: most VCs fail! A lot of money is invested in VCs not in the expectation of those investments being lucrative, but instead in the hopes that VC returns are uncorrelated with the public markets. But no retail investor does that.
- kbenson 9y ago
  > And, again: most VCs fail! A lot of money is invested in VCs not in the expectation of those investments being lucrative, but instead in the hopes that VC returns are uncorrelated with the public markets. Are there meta-VC's that treat VC funds like startups and invest in multiple VC funds with the understanding that most will fail? That is, can you confirm my suspicion that it really is turtles all the way down (or up)?
  - edanm 9y ago
    Most VCs raise money from things like pension funds, which manage a lot of money, and I believe invest in multiple vcs. They Usually invest a very small amount of their money in this sector, usually a fee percent at most.
  - hkmurakami 9y ago
    Fund of funds exist. They typically become LPs in PE funds and Hedge funds. Their value add is that they provide fund selection for sovereign funds / pensions / endowments that feel that they do not have the expertise to become LPs directly in the right funds (I find this value add to be bs, but I guess I'm unfamiliar with how clueless someone directing a random sovereign fund could be). Larger VCs will become LP in smaller upstart ones to have better visibility into earlier stage companies [1]. [1] Bessemer, Emergence, Social, and Sapphire are LPs in Saastr Fund http://www.saastrfund.com/strategic-partners-1/ http://www.saastrfund.com/strategic-partners-1/
- deleted 9y ago
  [deleted]
- ilugaslifk 9y ago
  > pay a tax out of your returns that wealthy investors don't have to pay Can you expand on this?
aswanson 9y ago
Again, selection problem. Most VCs can do a raise on their reputation and not have to deal with quarterly reports; most funds are 5-10 year closed. Great VCs wouldnt want to deal with the hassle of going public and reporting losses every year for five years straight. Also, startup valuations can be....creative.
omarchowdhury 9y ago
This is specifically not allowed under the JOBS ACT. I wish it were. I'd dedicate my life to it.
usrusr 9y ago
Trust. A crowd-VC-fund would have two options: either delegate decisions to a few powerful administrators or put everything up for direct voting. Administrators would be terribly prone to be influenced by more or less open kickbacks, because what they could potentially skim would far outweigh their personal investment or any piece tag you could put on whatever little reputation they might have. A conventional big name VC won't ever be impressed be the CEO of the startup he funded meeting him at a fancy restaurant, not so sure about the representative of some hypothetical crowd-VC subreddit. And keep in mind that most methods used to keep regular investment funds accountable cannot be applied to VC investments. The "everything up for a vote" path has a trust problem as well because that kind of popularity contest is totally unpredictable. A perfectly rational crowd today could tomorrow decide to go all in on a fake startup promising the energy revolution based karmavoltaic modules. All it would take is some vocal minority that is good at agitating everybody else into submission through the online arsenal of strawman tricks, shaming, tactical trolling and the like.
javiramos 9y ago
Allied Minds [1] is a publicly traded VC fund (LON:ALM). It is a bit unique in the sense that, in addition to doing traditional VC equity investments, they fund technologies at very early stages and build companies aroud them. [1] http://www.alliedminds.com/ http://www.alliedminds.com/
crispytx 9y ago
Investment companies usually have a different legal structure than a typical startup and are subject to different regulations. You could however start a conglomerate, like Berkshire Hathaway, that invests in startups like VCs do. So a "fund" wouldn't legally be allowed to raise money using equity crowdfunding. But a "conglomerate" that invests in startups structured as a C-Corporation could raise money through equity crowdfunding. Hope my reply helps!
dragonwriter 9y ago
> Why not to create a massive crowd-funded or publicly traded VC fund? Because then you need to find someone with the skill to be a VC fund principal who is satisfied to work as an employee magnifying other people's capital rather than magnifying his own. Or, have a fund run by someone without the requisite skill.
mljoe 9y ago
It's illegal, at least in the United States. Why? Because venture capital is considered too risky to be marketed as a public security. There are VC ETFs sold on the Hong Kong market.

tptacek 9y ago

Someone has to get paid to do that, so now the premise of equity crowdfunding has been reduced to: in the best case, you can crowdfund another venture capital firm, and pay a tax out of your returns that wealthy investors don't have to pay. And, again: most VCs fail! A lot of money is invested in VCs not in the expectation of those investments being lucrative, but instead in the hopes that VC returns are uncorrelated with the public markets. But no retail investor does that.

kbenson 9y ago
> And, again: most VCs fail! A lot of money is invested in VCs not in the expectation of those investments being lucrative, but instead in the hopes that VC returns are uncorrelated with the public markets. Are there meta-VC's that treat VC funds like startups and invest in multiple VC funds with the understanding that most will fail? That is, can you confirm my suspicion that it really is turtles all the way down (or up)?
- edanm 9y ago
  Most VCs raise money from things like pension funds, which manage a lot of money, and I believe invest in multiple vcs. They Usually invest a very small amount of their money in this sector, usually a fee percent at most.
- hkmurakami 9y ago
  Fund of funds exist. They typically become LPs in PE funds and Hedge funds. Their value add is that they provide fund selection for sovereign funds / pensions / endowments that feel that they do not have the expertise to become LPs directly in the right funds (I find this value add to be bs, but I guess I'm unfamiliar with how clueless someone directing a random sovereign fund could be). Larger VCs will become LP in smaller upstart ones to have better visibility into earlier stage companies [1]. [1] Bessemer, Emergence, Social, and Sapphire are LPs in Saastr Fund http://www.saastrfund.com/strategic-partners-1/ http://www.saastrfund.com/strategic-partners-1/
deleted 9y ago
[deleted]
ilugaslifk 9y ago
> pay a tax out of your returns that wealthy investors don't have to pay Can you expand on this?

aswanson 9y ago

Again, selection problem. Most VCs can do a raise on their reputation and not have to deal with quarterly reports; most funds are 5-10 year closed. Great VCs wouldnt want to deal with the hassle of going public and reporting losses every year for five years straight. Also, startup valuations can be....creative.

omarchowdhury 9y ago

This is specifically not allowed under the JOBS ACT. I wish it were. I'd dedicate my life to it.

usrusr 9y ago

Trust. A crowd-VC-fund would have two options: either delegate decisions to a few powerful administrators or put everything up for direct voting. Administrators would be terribly prone to be influenced by more or less open kickbacks, because what they could potentially skim would far outweigh their personal investment or any piece tag you could put on whatever little reputation they might have. A conventional big name VC won't ever be impressed be the CEO of the startup he funded meeting him at a fancy restaurant, not so sure about the representative of some hypothetical crowd-VC subreddit. And keep in mind that most methods used to keep regular investment funds accountable cannot be applied to VC investments. The "everything up for a vote" path has a trust problem as well because that kind of popularity contest is totally unpredictable. A perfectly rational crowd today could tomorrow decide to go all in on a fake startup promising the energy revolution based karmavoltaic modules. All it would take is some vocal minority that is good at agitating everybody else into submission through the online arsenal of strawman tricks, shaming, tactical trolling and the like.

javiramos 9y ago

Allied Minds [1] is a publicly traded VC fund (LON:ALM). It is a bit unique in the sense that, in addition to doing traditional VC equity investments, they fund technologies at very early stages and build companies aroud them. [1] http://www.alliedminds.com/ http://www.alliedminds.com/

crispytx 9y ago

Investment companies usually have a different legal structure than a typical startup and are subject to different regulations. You could however start a conglomerate, like Berkshire Hathaway, that invests in startups like VCs do. So a "fund" wouldn't legally be allowed to raise money using equity crowdfunding. But a "conglomerate" that invests in startups structured as a C-Corporation could raise money through equity crowdfunding. Hope my reply helps!

dragonwriter 9y ago

> Why not to create a massive crowd-funded or publicly traded VC fund? Because then you need to find someone with the skill to be a VC fund principal who is satisfied to work as an employee magnifying other people's capital rather than magnifying his own. Or, have a fund run by someone without the requisite skill.

mljoe 9y ago

It's illegal, at least in the United States. Why? Because venture capital is considered too risky to be marketed as a public security. There are VC ETFs sold on the Hong Kong market.