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I know blockchain gets a lot of hate on HN, but democratizing fundraising via crypto tokens and taking some power away from Silicon Valley VCs is a massive shif

I know blockchain gets a lot of hate on HN, but democratizing fundraising via crypto tokens and taking some power away from Silicon Valley VCs is a massive shift. The merit of the projects themselves can be debated, but the fact that technology entrepreneurs all over the world have easier access to capital has got to be a net positive.

1996 8y ago
You mean on a VC run forum, crypto gets a lot of hate because it is an alternative? Color me shocked! Personally, I think bootstrapping + ICO is far less trouble that even bothering with VCs, but I am sure many people with Stockholm syndrome will explain me why I'm wrong!
- mmt 8y ago
  I actually have no idea if you're right or wrong. However, one of my primary concerns regarding any "crowd-source" or direct-to-retail investment in startups is the information assymetry. It's tough, if not impossible (and certainly not scalable) for individual investors to do something like due diligence, especially in a manner consistent from startup to startup. This is a potentially soluble problem, with adequate regulation, and/or with third party providers (although keeping incentives aligned might be tough), but, in the meantime, I fear it could attract businesses that are much higher risk than even VC-funded startups, if not outright scams. On the other hand, I'm not convinced VCs have quite solved the problem, either, beyond, presumably, filtering out straightforward [1] scams. They do provide some minimum of risk-spreading by not investing in a single company (but their LPs get no say in those choices anyway). [1] i.e. embezzle the money and run, not complex fraud like Theranos, or even dot-com era spending all the money running the business, just with no credible business plan
  - 1996 8y ago
    I agree with you - it is impossible to say if it will be good or bad in the end. However, I believe individual investors will bridge the information asymmetry, since regulation of anonymous fungible crypto is bound to fail (or to be "as successful as the war on drugs" if your excuse my french) Since it can't be regulated, enough people will be scammed to cool down the taste for risk for the remaining ones. Whether the remaining ones is >0, IDK. Maybe yes, because out of a few billions, there will always be a few hotheads? In any case, I see the funding of highest risk business as a positive. I want to see crazy innovation like transhumanism!
    - mmt 8y ago
      > I believe individual investors will bridge the information asymmetry, since regulation of anonymous fungible crypto is bound to fail I'm not sure I follow. I'm willing to assume the latter as being true, but how does that failure lead to the former? Also, are you assuming that crypto will be the only viable crowdfunding venture investment method (perhaps because of its relative immunity to regulation)? > Since it can't be regulated, enough people will be scammed to cool down the taste for risk for the remaining ones. Whether the remaining ones is >0, IDK. That's the thing, though, I wasn't really talking about the supply of capital (i.e. the cash side), but rather the supply of ventures (i.e. the shares/securities side). If scams are possible, would enough legit founders bother going this route? I worry some version of Gresham's Law would take hold. > I see the funding of highest risk business as a positive. I do think that's, generally, the "access to capital" argument I've seen elsewhere in the thread. The counter-argument, which I don't necessarily agree with (and I surmise you firmly disagree with), is that some ventures are just so obviously unlikely to succeed that it's downright irresponsible to allocate any capital to them. (Although, to be fair, some of that criticism may be about the fundamentals of the business model, rather than the risk profile). Such a counter-argument strikes me as inconsistent with the generally-held maxim in capitalist investing regarding capital and asset allocation, which is the joke version of the Golden Rule, "he who has the gold makes the rule". I would be happy to support a system that allows investors the choice of putting their cash into as risky a venture as they want. What I'm leery of is a system that enables tricking investors into putting their cash into something that is riskier than they thought (or locks the cash up for longer, etc).
      - 1996 8y ago
        If no regulation can succeed, the market will turn either to a lemon market and die, or information will be provided to investors in "another way" (which we may not even guess yet) I'm not sure which will happen. Like you, I firmly believe anyone should be free to invest as they want, as long as no one is tricked. I just do not see the tricking as a stable equilibrium. I do not assume only crypto will be viable - just that it would be the best option. Given Gresham's law, it would make sense for investors to only want to pay in USD (to be protected) and for entrepreneurs to only want to accept crypto (to be free / high risk /etc). But USD and investment are regulated, while entrepreneurship is free, so I would bet on crypto winning. In the middle, I see a small opportunity for existing VC to turn into middlemen for those who have USD and are accredited investors. It is all still very uncertain. We sure live in intersting times!
mandelbrotwurst 8y ago
It's a net positive for technology entrepeneurs, certainly. What's less obvious is whether it's a net positive for everyone, e.g. if that "access to capital" comes in the form of naive investors pouring money into projects that are likely to fail (i.e. have been arguably a poor use of capital / a net negative).
- nine_k 8y ago
  Almost all projects are likely to fail. The key tenet of venture investment is investing in 500 companies, and have 499 fail, while one would give a 1000x return. A "retail" investor is likely not able to follow this strategy, so people who would invest in a few apparently great projects via blockchain technologies may be in for disappointment. But I don't see why small-scale venture investment via an appropriate technology could not work. Invest $10 in 500 companies, get $10k back... eventually.
  - mandelbrotwurst 8y ago
    Fair point. Where I said "likely to fail" what I meant was "so likely to fail that they represent a poor use of capital" (for even a large investor and also for society as a whole). As you've pointed out, there's a distinction between poor use of capital for the individual and a poor use of capital for society, and other groups in between. I'm not proposing that this is the case about any particular investment it just seemed worth pointing out that such a type of investment does exist.

1996 8y ago

You mean on a VC run forum, crypto gets a lot of hate because it is an alternative? Color me shocked! Personally, I think bootstrapping + ICO is far less trouble that even bothering with VCs, but I am sure many people with Stockholm syndrome will explain me why I'm wrong!

mmt 8y ago
I actually have no idea if you're right or wrong. However, one of my primary concerns regarding any "crowd-source" or direct-to-retail investment in startups is the information assymetry. It's tough, if not impossible (and certainly not scalable) for individual investors to do something like due diligence, especially in a manner consistent from startup to startup. This is a potentially soluble problem, with adequate regulation, and/or with third party providers (although keeping incentives aligned might be tough), but, in the meantime, I fear it could attract businesses that are much higher risk than even VC-funded startups, if not outright scams. On the other hand, I'm not convinced VCs have quite solved the problem, either, beyond, presumably, filtering out straightforward [1] scams. They do provide some minimum of risk-spreading by not investing in a single company (but their LPs get no say in those choices anyway). [1] i.e. embezzle the money and run, not complex fraud like Theranos, or even dot-com era spending all the money running the business, just with no credible business plan
- 1996 8y ago
  I agree with you - it is impossible to say if it will be good or bad in the end. However, I believe individual investors will bridge the information asymmetry, since regulation of anonymous fungible crypto is bound to fail (or to be "as successful as the war on drugs" if your excuse my french) Since it can't be regulated, enough people will be scammed to cool down the taste for risk for the remaining ones. Whether the remaining ones is >0, IDK. Maybe yes, because out of a few billions, there will always be a few hotheads? In any case, I see the funding of highest risk business as a positive. I want to see crazy innovation like transhumanism!
  - mmt 8y ago
    > I believe individual investors will bridge the information asymmetry, since regulation of anonymous fungible crypto is bound to fail I'm not sure I follow. I'm willing to assume the latter as being true, but how does that failure lead to the former? Also, are you assuming that crypto will be the only viable crowdfunding venture investment method (perhaps because of its relative immunity to regulation)? > Since it can't be regulated, enough people will be scammed to cool down the taste for risk for the remaining ones. Whether the remaining ones is >0, IDK. That's the thing, though, I wasn't really talking about the supply of capital (i.e. the cash side), but rather the supply of ventures (i.e. the shares/securities side). If scams are possible, would enough legit founders bother going this route? I worry some version of Gresham's Law would take hold. > I see the funding of highest risk business as a positive. I do think that's, generally, the "access to capital" argument I've seen elsewhere in the thread. The counter-argument, which I don't necessarily agree with (and I surmise you firmly disagree with), is that some ventures are just so obviously unlikely to succeed that it's downright irresponsible to allocate any capital to them. (Although, to be fair, some of that criticism may be about the fundamentals of the business model, rather than the risk profile). Such a counter-argument strikes me as inconsistent with the generally-held maxim in capitalist investing regarding capital and asset allocation, which is the joke version of the Golden Rule, "he who has the gold makes the rule". I would be happy to support a system that allows investors the choice of putting their cash into as risky a venture as they want. What I'm leery of is a system that enables tricking investors into putting their cash into something that is riskier than they thought (or locks the cash up for longer, etc).
    - 1996 8y ago
      If no regulation can succeed, the market will turn either to a lemon market and die, or information will be provided to investors in "another way" (which we may not even guess yet) I'm not sure which will happen. Like you, I firmly believe anyone should be free to invest as they want, as long as no one is tricked. I just do not see the tricking as a stable equilibrium. I do not assume only crypto will be viable - just that it would be the best option. Given Gresham's law, it would make sense for investors to only want to pay in USD (to be protected) and for entrepreneurs to only want to accept crypto (to be free / high risk /etc). But USD and investment are regulated, while entrepreneurship is free, so I would bet on crypto winning. In the middle, I see a small opportunity for existing VC to turn into middlemen for those who have USD and are accredited investors. It is all still very uncertain. We sure live in intersting times!

mandelbrotwurst 8y ago

It's a net positive for technology entrepeneurs, certainly. What's less obvious is whether it's a net positive for everyone, e.g. if that "access to capital" comes in the form of naive investors pouring money into projects that are likely to fail (i.e. have been arguably a poor use of capital / a net negative).

nine_k 8y ago
Almost all projects are likely to fail. The key tenet of venture investment is investing in 500 companies, and have 499 fail, while one would give a 1000x return. A "retail" investor is likely not able to follow this strategy, so people who would invest in a few apparently great projects via blockchain technologies may be in for disappointment. But I don't see why small-scale venture investment via an appropriate technology could not work. Invest $10 in 500 companies, get $10k back... eventually.
- mandelbrotwurst 8y ago
  Fair point. Where I said "likely to fail" what I meant was "so likely to fail that they represent a poor use of capital" (for even a large investor and also for society as a whole). As you've pointed out, there's a distinction between poor use of capital for the individual and a poor use of capital for society, and other groups in between. I'm not proposing that this is the case about any particular investment it just seemed worth pointing out that such a type of investment does exist.