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And yet, that worthless fraudulent garbage is one of the few ways to get rich. If Oculus had done an ICO instead of a kickstarter, my $400 wouldn't have been m

And yet, that worthless fraudulent garbage is one of the few ways to get rich. If Oculus had done an ICO instead of a kickstarter, my $400 wouldn't have been merely a preorder. The $400 would've become quite a handy sum by the time Oculus got acquired. That requires integrating ICOs into the existing startup structures, but it's worth trying.

jonknee 9y ago
Or maybe your Oculus ICO would have been worthless because it wasn't an equity offering...
zeroxfe 9y ago
> And yet, that worthless fraudulent garbage is one of the few ways to get rich. ...for the founders of said fraudulent garbage and perhaps a small number of very lucky people.
tptacek 9y ago
There is a reason you need to be an accredited investor to buy startup stock, and it isn't because the elite banksters are trying to protect their monopoly (startup venture capital for early-stage --- anything prior to, say, a B-round --- startups is a rounding error). Changing the word "stock" to "coin" doesn't change any of the underlying dynamics.
- ShabbosGoy 9y ago
  Aren’t ICOs covered under Reg CF of the JOBS Act though? That was the whole point of the JOBS act: to provide access to capital that an entrepreneur normally wouldn’t be able to obtain. An ICO is not a bad alternative to pre-seed funding.
  - tptacek 9y ago
    I don't know how many other restrictions apply, but apparently for RegCF, you can only take small amounts from non-accredited investors, and you have to raise less than 1MM.
- mbesto 9y ago
  > it isn't because the elite banksters are trying to protect their monopoly To quote The Dude "Well, that's just like your opinion, man". I think your point is that the intention of the law is so that people are manipulated into buying securities they can't afford (e.g. scams). This is true, however some would argue that this legislation is yet another reason the rich continue to stay rich, which is a legitimate argument. So I wouldn't be so dismissive of that opinion.
  - tptacek 9y ago
    I do not understand the underlying logic of this argument. It seems to suggest that but for pesky SEC RegD rule, there'd be 10,000% appreciation opportunities for everyone, not just the wealthiest investors. How do people making this argument think money works? People that can commit $20,000,000 to an investment with the stroke of a pen are going to get the best opportunities no matter how they're structured: they can offer better terms. Literally the only thing retail investors could conceivably offer to compete with them is "willingness to be screwed over without recourse". Stipulate a future in which essentially no ICO is regulated, and most new venture raises happen with publicly traded ICOs. Follow that thought to its conclusion and explain to me how the best opportunities are going to provide 10,000% gains, rather than markets acting the way all logic in either direction about ICOs dictates they must act, and pricing risk and opportunity accordingly? I see how, in the post- free-ICO world, you'll be able to bet that restaurant review coupons will 10x your money. Coupons for everything. 10x your money on dog washing and cat sharing; that'll happen too. What I don't see is why the truly credible teams doing truly important work with a real chance of success are going to offer securities on those same terms. How does that work? How stupid would you have to be to look at a market where restaurant review coupons are worth $15MM because they're certain! to 9x your investment, and then go to market with the next generation of, say, the Cisco Catalyst 9400 switch on those exact same terms? Aren't restaurant review coupons in some sense the ceiling on how too-good-to-be-true these ICO deals can be? I mean: that business is obviously not going to work. A reasonably sophisticated person can only put money on it in the hopes that someone dumber will buy it off them in a week or two.
    - sillysaurus3 9y ago
- pishpash 9y ago
  Is there any access at all, even through other funds? If not then there is a problem. Maybe prohibiting advertising and soliciting is enough. Maybe place some limits. But there are no good reasons I can think of to blanket prohibit investment itself to the "non-accredited".
  - tptacek 9y ago
    Yes; the money venture capitalists invest comes from other funds, among them things like pension funds. A fact people seem to overlook in these discussions is that unless you can see the future, you can't just invest in Google and Airbnb; you invest in a sample of the whole tech startup market. And when you do that, by and large, you underperform the S&P 500. Funds and endowments invest as VC LPs not simply because they want access to the insane deals that startups provide, but because they want decorrelated investments: they want some of their money allocated to investments that will perform differently than the market as a whole. When you have billions under management, it makes total sense to throw tens of millions at tech startups.
- philipodonnell 9y ago
  This perspective is... naive. When accredited investors became a thing it may have started as a paternalistic "protect the poor from themselves", but now it merely serves to limit the supply of investors (read:rich) to a relative few who can dictate more favorable terms to those seeking that capital (read:poor). When the primary determination is whether you already _have_ money, rather than education, professional history, earning potential, or a history of demonstrated ability to make informed investment decisions... it becomes extremely difficult to argue that its anything other than an artificial class barrier.
  - caust1c 9y ago
    > When the primary determination is whether you already _have_ money, rather than education, professional history, earning potential, or a history of demonstrated ability to make informed investment decisions... This is the case because many regulations (Tax code, laws) favor the wealthy. If we didn't have the SEC regulations, then the clever and wealthy would prey on the poor and uneducated. This is textbook what happened in the 20s. Honestly, the SEC is probably one of the last decent regulatory bodies of our government.
  - tptacek 9y ago
    What I think is naive is the idea that opening investment in something up to the public would somehow harm the financial sector, rather than generating billions in profits for it.
    - sillysaurus3 9y ago
      http://www.paulgraham.com/divergence.html http://www.paulgraham.com/divergence.html VC funding will probably dry up somewhat during the present recession, like it usually does in bad times. But this time the result may be different. This time the number of new startups may not decrease. And that could be dangerous for VCs. When VC funding dried up after the Internet Bubble, startups dried up too. There were not a lot of new startups being founded in 2003. But startups aren't tied to VC the way they were 10 years ago. It's now possible for VCs and startups to diverge. And if they do, they may not reconverge once the economy gets better. This logic works in reverse, too: if funding becomes dramatically easier thanks to ICOs, startups have no reason to court VCs anymore. And that could be dangerous for VCs.
mikestew 9y ago
And yet, that worthless fraudulent garbage is one of the few ways to get rich. The worthless fraudulent garbage is an even a better way to get poor. Which is why there is a financial test to make such investments: “does this person have that kind of money to piss away?”
- DennisP 9y ago
  But that should be a percentage of net worth, rather than a binary function that flips at an arbitrary $1M.
  - dabockster 9y ago
    The line of thinking here seems to be that, to get to $1M, you probably have learned a lot more than someone making only $50-60k a year. So not only would you have the capital, you'd also have the common sense not to make a poor investment.
    - crankylinuxuser 9y ago
      But it also continues the idea "Only the rich may get richer. These things are not for the little guy." Unless we want to equate "Not having a great deal of money as someone who is too stupid to know how to invest."
      - s73ver_ 9y ago
        Except this entire discussion was kicked off by trying to evade reporting and disclosure regulations.
    - saalweachter 9y ago
      Frankly I think there's also some sort of "sympathy level" in the law. If a little old lady living on a fixed income loses all her meager savings to a huckster we feel a lot worse for her than if a Wall Street 1%er with three houses loses all his savings to the same huckster. Which might not be the fairest or most logical way to legislate, but laws are about feelings as much as anything else.
cstejerean 9y ago
Why would your ICO have been worth anything at all during an acquisition? If it isn’t tied to equity in the company (to avoid securities violations) then what exactly would have given it value in an acquisition? Who would have bought it from you for more money and why?
- sillysaurus3 9y ago
  I meant conceptually. If the startup ecosystem embraces ICOs, then that type of thing can happen. Right now we'd just have to settle for "If Oculus got acquired, the price probably would have gone up." But you could imagine starting a company that promises to incorporate tokens into the structure somehow: Perhaps the founder would say they'll only sell to acquirers that are willing to offer token holders $x, where $x is based on the price over the last month before being acquired. Then it'd be in the founder's best interest to sell as little of the token as possible to cover operations, since otherwise it reduces their chances of getting acquired -- just like normal investment. Also it incentivizes founders to make the company do well: if they can tap into funding when needed (because they have premined coins they can sell), they're less beholden to the valley. That means a smart 18 year old can single-handedly launch and fund a company; no permission needed from some cabal of investors. Moot was 15 when he launched 4chan. If you believed in its future, you could've (a) supported it by buying their token, and (b) possibly made some return on that belief. Obviously, all of the normal caveats apply: most investments don't work out. But everyone knows that. If I want to put $2k into a company, why is the government stepping in to stop me? I can go waste $2k at the casino or squander it however I want. It's my money. Bitcoin itself can be thought of as an ICO. When people buy Bitcoin, we're buying into Satoshi's vision for the future. It's not merely because it's useful. So why is that legal, but ICOs aren't? The overall point is that this is a powerful model, and it could become even more powerful. The rest of the world is embracing it, so the US could find themselves left out by getting too draconian.
  - dkersten 9y ago
    If the ICO tokens are tied to some reward on acquisition, then how is it any different from other securities? May as well just sell equity at that stage (perhaps through something like seedrs, which accepts small investments too). If it’s basically just a security like any others, why should it bypass the regulations? If it walks like a security and it quacks like a security, then everything else is just a technicality: it’s a security. Also, what benefit does using a cryptocurrency even buy you here other than as a technicality to attempt to sidestep the laws? Maybe the laws should be relaxed to open it up to more laypeople, but given how easily people get burned and scammed at this stuff, I’m not fully convinced (penny stocks anyone? Or even Bitcoin: yes some people got rich and others will get rich in the future, but there’s a very high chance that a lot of laypeople who bought in recently because of the price surge are going to lose a lot of money). The point of “accredited investor” is that they can afford to lose their investments.
dabockster 9y ago
> If Oculus had done an ICO instead of a kickstarter, my $400 wouldn't have been merely a preorder. The $400 would've become quite a handy sum by the time Oculus got acquired. And Oculus could have just as easily took your $400 and vanished without a trace. Or you could have unknowingly purchased shares that were worthless to begin with.
ryanwaggoner 9y ago
And yet, that worthless fraudulent garbage is one of the few ways to get rich. Historically, this has not been true. Depending on your definition of "rich", very few wealthy people have gotten there by investing in other people's companies where accreditation was required. Most wealth is built by via ownership of your own company, real estate (which is a type of company), or by investing in public markets. These pathways are all still available to you, and almost certainly still represent a better long-term risk-adjusted return than ICOs. If Oculus had done an ICO instead of a kickstarter, my $400 wouldn't have been merely a preorder. The $400 would've become quite a handy sum by the time Oculus got acquired. This actually is an interesting point, but it does require some serious cherry-picking. I'd be interested to see the data behind a scenario where all the funded startups for the last decade had been ICOs instead of venture-backed. I doubt it'd look so rosy in that scenario, especially when you consider that many more failures would likely have been funded, based on how easy it is to raise money from an ICO based on nothing other than a pretty website template.
- kekeblom 9y ago
  Considering that an ico in oculus’s case would mean that they would issue a token which could be exchanged against a device, I fail to see how the token could increase in value in any significant way.
  - ryanwaggoner 9y ago
    I guess I was thinking more of Oculus as platform than as device.
- dreit1 9y ago
  Getting rich by investing in public markets....come on. No non high net worth individual will get rich investing in public markets.
wpietri 9y ago
> And yet, that worthless fraudulent garbage is one of the few ways to get rich. They are a much, much better way to get poor. There's a reason we have the laws we do: a long history of amateurs getting taken to the cleaners by professional fraudsters.
Lazare 9y ago
Everything you just said is shockinly wrong. The issue with Kickstarter is that it gave you no ownership interest in Oculus. Your $400 was just a pre-order. But at least it's a pre-order! Whereas the issue with ICOs is that they give you no ownership interest. Your $400 is just a donation. "The $400 would've become quite a handy sum by the time Oculus got acquired." Only if you had purchased equity. An ICO is not equity. You're literally about being taken for a ride, and responding by wishing you could have been taken for a bigger ride, with fewer protections.

jonknee 9y ago

Or maybe your Oculus ICO would have been worthless because it wasn't an equity offering...

zeroxfe 9y ago

> And yet, that worthless fraudulent garbage is one of the few ways to get rich. ...for the founders of said fraudulent garbage and perhaps a small number of very lucky people.

tptacek 9y ago

There is a reason you need to be an accredited investor to buy startup stock, and it isn't because the elite banksters are trying to protect their monopoly (startup venture capital for early-stage --- anything prior to, say, a B-round --- startups is a rounding error). Changing the word "stock" to "coin" doesn't change any of the underlying dynamics.

ShabbosGoy 9y ago
Aren’t ICOs covered under Reg CF of the JOBS Act though? That was the whole point of the JOBS act: to provide access to capital that an entrepreneur normally wouldn’t be able to obtain. An ICO is not a bad alternative to pre-seed funding.
- tptacek 9y ago
  I don't know how many other restrictions apply, but apparently for RegCF, you can only take small amounts from non-accredited investors, and you have to raise less than 1MM.
mbesto 9y ago
> it isn't because the elite banksters are trying to protect their monopoly To quote The Dude "Well, that's just like your opinion, man". I think your point is that the intention of the law is so that people are manipulated into buying securities they can't afford (e.g. scams). This is true, however some would argue that this legislation is yet another reason the rich continue to stay rich, which is a legitimate argument. So I wouldn't be so dismissive of that opinion.
- tptacek 9y ago
  I do not understand the underlying logic of this argument. It seems to suggest that but for pesky SEC RegD rule, there'd be 10,000% appreciation opportunities for everyone, not just the wealthiest investors. How do people making this argument think money works? People that can commit $20,000,000 to an investment with the stroke of a pen are going to get the best opportunities no matter how they're structured: they can offer better terms. Literally the only thing retail investors could conceivably offer to compete with them is "willingness to be screwed over without recourse". Stipulate a future in which essentially no ICO is regulated, and most new venture raises happen with publicly traded ICOs. Follow that thought to its conclusion and explain to me how the best opportunities are going to provide 10,000% gains, rather than markets acting the way all logic in either direction about ICOs dictates they must act, and pricing risk and opportunity accordingly? I see how, in the post- free-ICO world, you'll be able to bet that restaurant review coupons will 10x your money. Coupons for everything. 10x your money on dog washing and cat sharing; that'll happen too. What I don't see is why the truly credible teams doing truly important work with a real chance of success are going to offer securities on those same terms. How does that work? How stupid would you have to be to look at a market where restaurant review coupons are worth $15MM because they're certain! to 9x your investment, and then go to market with the next generation of, say, the Cisco Catalyst 9400 switch on those exact same terms? Aren't restaurant review coupons in some sense the ceiling on how too-good-to-be-true these ICO deals can be? I mean: that business is obviously not going to work. A reasonably sophisticated person can only put money on it in the hopes that someone dumber will buy it off them in a week or two.
  - sillysaurus3 9y ago
pishpash 9y ago
Is there any access at all, even through other funds? If not then there is a problem. Maybe prohibiting advertising and soliciting is enough. Maybe place some limits. But there are no good reasons I can think of to blanket prohibit investment itself to the "non-accredited".
- tptacek 9y ago
  Yes; the money venture capitalists invest comes from other funds, among them things like pension funds. A fact people seem to overlook in these discussions is that unless you can see the future, you can't just invest in Google and Airbnb; you invest in a sample of the whole tech startup market. And when you do that, by and large, you underperform the S&P 500. Funds and endowments invest as VC LPs not simply because they want access to the insane deals that startups provide, but because they want decorrelated investments: they want some of their money allocated to investments that will perform differently than the market as a whole. When you have billions under management, it makes total sense to throw tens of millions at tech startups.
philipodonnell 9y ago
This perspective is... naive. When accredited investors became a thing it may have started as a paternalistic "protect the poor from themselves", but now it merely serves to limit the supply of investors (read:rich) to a relative few who can dictate more favorable terms to those seeking that capital (read:poor). When the primary determination is whether you already _have_ money, rather than education, professional history, earning potential, or a history of demonstrated ability to make informed investment decisions... it becomes extremely difficult to argue that its anything other than an artificial class barrier.
- caust1c 9y ago
  > When the primary determination is whether you already _have_ money, rather than education, professional history, earning potential, or a history of demonstrated ability to make informed investment decisions... This is the case because many regulations (Tax code, laws) favor the wealthy. If we didn't have the SEC regulations, then the clever and wealthy would prey on the poor and uneducated. This is textbook what happened in the 20s. Honestly, the SEC is probably one of the last decent regulatory bodies of our government.
- tptacek 9y ago
  What I think is naive is the idea that opening investment in something up to the public would somehow harm the financial sector, rather than generating billions in profits for it.
  - sillysaurus3 9y ago
    http://www.paulgraham.com/divergence.html http://www.paulgraham.com/divergence.html VC funding will probably dry up somewhat during the present recession, like it usually does in bad times. But this time the result may be different. This time the number of new startups may not decrease. And that could be dangerous for VCs. When VC funding dried up after the Internet Bubble, startups dried up too. There were not a lot of new startups being founded in 2003. But startups aren't tied to VC the way they were 10 years ago. It's now possible for VCs and startups to diverge. And if they do, they may not reconverge once the economy gets better. This logic works in reverse, too: if funding becomes dramatically easier thanks to ICOs, startups have no reason to court VCs anymore. And that could be dangerous for VCs.

mikestew 9y ago

And yet, that worthless fraudulent garbage is one of the few ways to get rich. The worthless fraudulent garbage is an even a better way to get poor. Which is why there is a financial test to make such investments: “does this person have that kind of money to piss away?”

DennisP 9y ago
But that should be a percentage of net worth, rather than a binary function that flips at an arbitrary $1M.
- dabockster 9y ago
  The line of thinking here seems to be that, to get to $1M, you probably have learned a lot more than someone making only $50-60k a year. So not only would you have the capital, you'd also have the common sense not to make a poor investment.
  - crankylinuxuser 9y ago
    But it also continues the idea "Only the rich may get richer. These things are not for the little guy." Unless we want to equate "Not having a great deal of money as someone who is too stupid to know how to invest."
    - s73ver_ 9y ago
      Except this entire discussion was kicked off by trying to evade reporting and disclosure regulations.
  - saalweachter 9y ago
    Frankly I think there's also some sort of "sympathy level" in the law. If a little old lady living on a fixed income loses all her meager savings to a huckster we feel a lot worse for her than if a Wall Street 1%er with three houses loses all his savings to the same huckster. Which might not be the fairest or most logical way to legislate, but laws are about feelings as much as anything else.

cstejerean 9y ago

Why would your ICO have been worth anything at all during an acquisition? If it isn’t tied to equity in the company (to avoid securities violations) then what exactly would have given it value in an acquisition? Who would have bought it from you for more money and why?

sillysaurus3 9y ago
I meant conceptually. If the startup ecosystem embraces ICOs, then that type of thing can happen. Right now we'd just have to settle for "If Oculus got acquired, the price probably would have gone up." But you could imagine starting a company that promises to incorporate tokens into the structure somehow: Perhaps the founder would say they'll only sell to acquirers that are willing to offer token holders $x, where $x is based on the price over the last month before being acquired. Then it'd be in the founder's best interest to sell as little of the token as possible to cover operations, since otherwise it reduces their chances of getting acquired -- just like normal investment. Also it incentivizes founders to make the company do well: if they can tap into funding when needed (because they have premined coins they can sell), they're less beholden to the valley. That means a smart 18 year old can single-handedly launch and fund a company; no permission needed from some cabal of investors. Moot was 15 when he launched 4chan. If you believed in its future, you could've (a) supported it by buying their token, and (b) possibly made some return on that belief. Obviously, all of the normal caveats apply: most investments don't work out. But everyone knows that. If I want to put $2k into a company, why is the government stepping in to stop me? I can go waste $2k at the casino or squander it however I want. It's my money. Bitcoin itself can be thought of as an ICO. When people buy Bitcoin, we're buying into Satoshi's vision for the future. It's not merely because it's useful. So why is that legal, but ICOs aren't? The overall point is that this is a powerful model, and it could become even more powerful. The rest of the world is embracing it, so the US could find themselves left out by getting too draconian.
- dkersten 9y ago
  If the ICO tokens are tied to some reward on acquisition, then how is it any different from other securities? May as well just sell equity at that stage (perhaps through something like seedrs, which accepts small investments too). If it’s basically just a security like any others, why should it bypass the regulations? If it walks like a security and it quacks like a security, then everything else is just a technicality: it’s a security. Also, what benefit does using a cryptocurrency even buy you here other than as a technicality to attempt to sidestep the laws? Maybe the laws should be relaxed to open it up to more laypeople, but given how easily people get burned and scammed at this stuff, I’m not fully convinced (penny stocks anyone? Or even Bitcoin: yes some people got rich and others will get rich in the future, but there’s a very high chance that a lot of laypeople who bought in recently because of the price surge are going to lose a lot of money). The point of “accredited investor” is that they can afford to lose their investments.

dabockster 9y ago

> If Oculus had done an ICO instead of a kickstarter, my $400 wouldn't have been merely a preorder. The $400 would've become quite a handy sum by the time Oculus got acquired. And Oculus could have just as easily took your $400 and vanished without a trace. Or you could have unknowingly purchased shares that were worthless to begin with.

ryanwaggoner 9y ago

And yet, that worthless fraudulent garbage is one of the few ways to get rich. Historically, this has not been true. Depending on your definition of "rich", very few wealthy people have gotten there by investing in other people's companies where accreditation was required. Most wealth is built by via ownership of your own company, real estate (which is a type of company), or by investing in public markets. These pathways are all still available to you, and almost certainly still represent a better long-term risk-adjusted return than ICOs. If Oculus had done an ICO instead of a kickstarter, my $400 wouldn't have been merely a preorder. The $400 would've become quite a handy sum by the time Oculus got acquired. This actually is an interesting point, but it does require some serious cherry-picking. I'd be interested to see the data behind a scenario where all the funded startups for the last decade had been ICOs instead of venture-backed. I doubt it'd look so rosy in that scenario, especially when you consider that many more failures would likely have been funded, based on how easy it is to raise money from an ICO based on nothing other than a pretty website template.

kekeblom 9y ago
Considering that an ico in oculus’s case would mean that they would issue a token which could be exchanged against a device, I fail to see how the token could increase in value in any significant way.
- ryanwaggoner 9y ago
  I guess I was thinking more of Oculus as platform than as device.
dreit1 9y ago
Getting rich by investing in public markets....come on. No non high net worth individual will get rich investing in public markets.

wpietri 9y ago

> And yet, that worthless fraudulent garbage is one of the few ways to get rich. They are a much, much better way to get poor. There's a reason we have the laws we do: a long history of amateurs getting taken to the cleaners by professional fraudsters.

Lazare 9y ago

Everything you just said is shockinly wrong. The issue with Kickstarter is that it gave you no ownership interest in Oculus. Your $400 was just a pre-order. But at least it's a pre-order! Whereas the issue with ICOs is that they give you no ownership interest. Your $400 is just a donation. "The $400 would've become quite a handy sum by the time Oculus got acquired." Only if you had purchased equity. An ICO is not equity. You're literally about being taken for a ride, and responding by wishing you could have been taken for a bigger ride, with fewer protections.