6 ms·

I work in private equity so I've been keeping an eye on the crowdfunding space and the quality of the equity on offer is -- to put it lightly -- unbelievably lo

by cjlars 6y ago

I work in private equity so I've been keeping an eye on the crowdfunding space and the quality of the equity on offer is -- to put it lightly -- unbelievably low. I saw one company offering a SAFE note that only paid out if they went public... for a single location brewpub (not even a chain concept!). I'm not sure if that's legally the same as theft, but I'm quite certain it is statistically the same as theft. I'd advise everyone to steer clear of the space until we have a government interested in minimizing the level of fraud and abuse. This current development is likely to make things worse, not better.

mistrial9 6y ago
.. as a US citizen, I find some ugly humor in someone from the world of "private equity" , hinged on inflated asset valuation a.k.a. fraud, pointing a finger at a single, sole proprietor of a BREWARY making one obviously bad offering.
- tptacek 6y ago
  The rare genuine ad-hom. The comment above explained their reservations about the crowdfunding issue for this brewery, and those reservations were extremely straightforward. Also, this kind of personalizing of arguments is forbidden by the site guidelines. Take it to Reddit.
  - mistrial9 6y ago
    (it is my intention to comply with site guidelines)
    - tptacek 6y ago
      You are comprehensively wrong. You are wrong about what the comment "essentially" does, you're wrong that they used anything as a "podium", you're wrong to quote them saying something they didn't actually say, and you're wrong to point out your personal problems with a commenter or their background, a point, again, amply supported by the site guidelines.
  - darkerside 6y ago
    To his credit, mistrial9 is making a substantive argument in pointing out that cjlars is cherry-picking data. And while I don't personally hold private equity in poor repute, I can see the irony in someone from that world expressing skepticism about unrealistic valuations.
    - service_bus 6y ago
      The OP never said their example wasn't an outlier, they were just making a point that these things happen. Regardless, you can't just respond to a specific example with broad generalizations. It's textbook 'whataboutism'.
      - kwp 6y ago
        Since when is "whataboutism" forbidden and who cares? It is just a stupid Internet meme to shut down discussions.
      - darkerside 6y ago
        OP recommended avoiding an entire asset class based on the example, so I think OP was guilty of generalizing here. The child comment also generalized about PE and its practitioners, which I agree was not a strong argument, but I don't think invalidates the entire post.
- clairity 6y ago
  there are PE deals that are genuinely value-creating. i worked for a company that blossomed under (partial) PE ownership (until it was sold and the new owners bungled it). the problem is that the incentives and the actors in PE are often aligned against this sort of win-win deal.
wmf 6y ago
It's a logical conclusion that many people pointed out. Why would you sell equity to random people instead of VCs? Because you're doing something that VCs won't touch. We should expect all Reg Crowdfunding/A+ deals to be either scams, low quality, or small opportunities.
- RockIslandLine 6y ago
  The question is why won't they touch it. Unrealistic expectations of high returns kill deals too. I'd be more than happy to start funding deals with high probabilities of low-to-medium returns. And I know for a fact that those deals exist at the small scale.
  - tptacek 6y ago
    People say this a lot but it's worth questioning, because the "unrealistic expectations" also make the portfolio math work, and if the math doesn't work, not liking the expectations doesn't turn a broken investment into a viable one. You can do a really superficial analysis in 5 minutes of Google Sheets to work this out for yourself, and at least crystallize your implicit expectations about the number of companies in your portfolio you expect to be profitable in N years as opposed to dead and gone.
    - renewiltord 6y ago
      I vaguely remember in the Startup podcast that Gimlet Media went to non-VCs before VCs would get in on their thing. And they did eventually do a $200k crowdfunding campaign. So clearly the argument "No VC = Scam" doesn't work. I do buy that the scam rate may be higher. But I think allowing yourself to be scammed some amount is probably okay.
      - BobbyJo 6y ago
        Didn't they have a poor outcome? I feel like the only reason VCs got involved eventually was FOMO, not a solid thesis.
em-bee 6y ago
if this is supposed to help small businesses in the pandemic, then this should be limited to businesses that are already established and had been making revenue, or even profit. that should weed out all the pure scams and limit the potential for abuse. there is still a risk. but it's much easier to judge the potential of an existing business going through a rough time, vs understanding the difference between a genuine new business or a scam.

by cjlars 6y ago

mistrial9 6y ago

.. as a US citizen, I find some ugly humor in someone from the world of "private equity" , hinged on inflated asset valuation a.k.a. fraud, pointing a finger at a single, sole proprietor of a BREWARY making one obviously bad offering.

tptacek 6y ago
The rare genuine ad-hom. The comment above explained their reservations about the crowdfunding issue for this brewery, and those reservations were extremely straightforward. Also, this kind of personalizing of arguments is forbidden by the site guidelines. Take it to Reddit.
- mistrial9 6y ago
  (it is my intention to comply with site guidelines)
  - tptacek 6y ago
    You are comprehensively wrong. You are wrong about what the comment "essentially" does, you're wrong that they used anything as a "podium", you're wrong to quote them saying something they didn't actually say, and you're wrong to point out your personal problems with a commenter or their background, a point, again, amply supported by the site guidelines.
- darkerside 6y ago
  To his credit, mistrial9 is making a substantive argument in pointing out that cjlars is cherry-picking data. And while I don't personally hold private equity in poor repute, I can see the irony in someone from that world expressing skepticism about unrealistic valuations.
  - service_bus 6y ago
    The OP never said their example wasn't an outlier, they were just making a point that these things happen. Regardless, you can't just respond to a specific example with broad generalizations. It's textbook 'whataboutism'.
    - kwp 6y ago
      Since when is "whataboutism" forbidden and who cares? It is just a stupid Internet meme to shut down discussions.
    - darkerside 6y ago
      OP recommended avoiding an entire asset class based on the example, so I think OP was guilty of generalizing here. The child comment also generalized about PE and its practitioners, which I agree was not a strong argument, but I don't think invalidates the entire post.
clairity 6y ago
there are PE deals that are genuinely value-creating. i worked for a company that blossomed under (partial) PE ownership (until it was sold and the new owners bungled it). the problem is that the incentives and the actors in PE are often aligned against this sort of win-win deal.

wmf 6y ago

It's a logical conclusion that many people pointed out. Why would you sell equity to random people instead of VCs? Because you're doing something that VCs won't touch. We should expect all Reg Crowdfunding/A+ deals to be either scams, low quality, or small opportunities.

RockIslandLine 6y ago
The question is why won't they touch it. Unrealistic expectations of high returns kill deals too. I'd be more than happy to start funding deals with high probabilities of low-to-medium returns. And I know for a fact that those deals exist at the small scale.
- tptacek 6y ago
  People say this a lot but it's worth questioning, because the "unrealistic expectations" also make the portfolio math work, and if the math doesn't work, not liking the expectations doesn't turn a broken investment into a viable one. You can do a really superficial analysis in 5 minutes of Google Sheets to work this out for yourself, and at least crystallize your implicit expectations about the number of companies in your portfolio you expect to be profitable in N years as opposed to dead and gone.
  - renewiltord 6y ago
    I vaguely remember in the Startup podcast that Gimlet Media went to non-VCs before VCs would get in on their thing. And they did eventually do a $200k crowdfunding campaign. So clearly the argument "No VC = Scam" doesn't work. I do buy that the scam rate may be higher. But I think allowing yourself to be scammed some amount is probably okay.
    - BobbyJo 6y ago
      Didn't they have a poor outcome? I feel like the only reason VCs got involved eventually was FOMO, not a solid thesis.

em-bee 6y ago

if this is supposed to help small businesses in the pandemic, then this should be limited to businesses that are already established and had been making revenue, or even profit. that should weed out all the pure scams and limit the potential for abuse. there is still a risk. but it's much easier to judge the potential of an existing business going through a rough time, vs understanding the difference between a genuine new business or a scam.