9 ms·

I don't think crowdfunding is good for startups. For startups, having large numbers of investors is bad, and having inexperienced investors is bad. So having

• tmilard 15y ago
  Fact 1) If you are READY to sell a product, yes you do not need funding Fact 2) If you need to sell Stock (crowdfunding or not) it is that you product needs a few month to deliver. --> strategy 1(sell product) is not versus stategy 2 (sell equity). Not, those two strategies answer different needs. Thierry
• tstegart 15y ago
  Is it the same though? If your start-up gets money from Kleiner Perkins, do you really pay attention to everyone who gave money to Kleiner Perkins to start the original fund? I had in mind that HN would be more of being a provider of capital than an active investor. YC would be "investor."
  • patio11 15y ago
    Harvard University invests quite a bit of money in equity vehicles so for illustrative purposes I'm going to pretend they are a LP in KP. Here's a conversation which will never happen: "Hey, YC company! This is Bob at Endowment Management at Harvard. I've decided to forget my 20 year career in finance while simultaneously hopping straight over our trusted partners at KP and ask you directly about our investment. As you'll recall, we dropped a whole Benjamin on that software whatsamahoozit of yours, and we want to know you're working hard on protecting our investment. It shouldn't have cookies, or crackers, or whatever the trace your Facebooks on the Googles thing the WSJ was talking about this morning. You should probably give me your cell phone number so I can call at odd hours with spurious requests. By the way I hear Steve at Stanford says you're a dick for not answering your phone -- not cool! Steve paid 20 perfectly good dollars for your stock, you OWE it to him to take his questions."
    • tstegart 15y ago
      Hmmm... Not sure if you agree with me or disagree with me.
      • larrys 15y ago
        He says: "conversation which will never happen" Which means that the investment professionals aren't loose canons and they've been around the block and understand what their role is. Publicly at least they don't operate like that.
• muhfuhkuh 15y ago
  "For startups, having large numbers of investors is bad" But isn't investment about spreading risk? The more risk you spread, the less founders would have to a) give up in ownership and b) answer to anyone but their own vision. I think the reason why kiva (and even prosper) works is that risk is spread widely to individuals with common vested interest and enough skin in the game to make it sting but not be completely in-shambles devastating; as opposed to rich people trusting a richer VC to make them foo% return and putting it all in Color. "The right way to get money from large numbers of people is to sell them your product, like Inpulse did, not to sell them your stock." What if the product isn't one? What if it's a service like Facebook or (gasp!) Instagram? If you believe in a vision, and you want to contribute to it monetarily -- perhaps even see a return on that money -- why is that bad?
  • tlb 15y ago
    It's good to spread risk enough that nobody would be badly hurt by a loss, but not more than that.
  • larrys 15y ago
    "But isn't investment about spreading risk?" Spreading risk is only one factor. It's like selling a car and only factoring in fuel efficiency and ignoring safety. Having a larger number of people, and this is important, with a megaphone that are like minded that can cause you trouble would be hard to control. While you could say that companies now have a large number of investors (stock owners) and they have little control, they also aren't the age group using the megaphone of the internet to amplify their voice.
  • connor 15y ago
    Yes, but including a lot of unexperienced investors actually increases the risk of failure. The distraction alone (in time spent managing these investors) might be the death of any startup. Imagine trying to deal with hundreds of mini-vc's all day. Pg's right in the sense that a startup needs just a few focused, knowledgable investors early on. Something like Kiva might work for a startup, but perhaps more in a donation bootstrap sense. Not as a serious investment.
  • 15y ago
• j45 15y ago
  Instead of investors, could there be a place where customers can sign up to be early access paying customers, instead of shareholders? My first impression of Kickstarter was "Cool, I get to buy this and support the first batch being built and get a product", not "I am a shareholder and get a product". The fact that I was some kind of shareholder came as a total surprise to me, and didn't seem to make sense. I was helping kickstart a project by buying one of the first batch, like a group buy, instead of getting the company off the ground.
  • vibrunazo 15y ago
    > Instead of investors, could there be a place where customers can sign up to be early access paying customers, instead of shareholders? That's the example pg gave about InPulse. And hell it worked great. http://www.kickstarter.com/projects/597507018/pebble-e-paper-watch-for-iphone-and-android http://www.kickstarter.com/projects/597507018/pebble-e-paper...
    • j45 15y ago
      My bad, totally missed it. A better clarification on my part would have been "sell early access to a mailing list via monthly subscription which becomes a monthly subscription product". If there was a beta available, all the better. Either way, the customer knows exactly what they're getting into.
• tonyjwang 15y ago
  PG, would you still feel the same if there were limited disclosure/access requirements to crowd investors, so that the disclosure/reporting obligations were no different than if you were dealing with a limited number of accredited and/or sophisticated investors?
• dreadsword 15y ago
  Kickstarter's aggregate-laissez-faire-angel model has some notable successes under its belt. I suppose the failures aren't as publicized. The legal mechanics of relating kickstarter-style funding to a share issue would add cost and complexity. If a prospective company thinks it has a case for kickstarter-style crowd funding, it should probably make that case... on kickstarter.
• tzury 15y ago
  I am going to print the last sentence and hang it on the wall.
• seeingfurther 15y ago
  I would equate funding your startup via crowd funding to funding your public company via the pink sheets.
• mncolinlee 15y ago
  For some startups, this leaves a chicken and egg problem. I've certainly been there with BidNear.Us. You can't afford to self-fund everything, you've got a mortgage to pay, and your product requires a critical mass, not just early adopters, to finish the sale. I think if the product requires a crowd to complete a sale, it might make sense to crowdfund. What if those game developers on Kickstarter had tried to directly sell their games for $50 today with no working product for two years later without any proof that the game was funded and could exist. People would rightly call it a scam.
• codinghorror 15y ago
  "institutions will seek to preserve the problem for which they are the solution" That said, isn't "crowdfunding" your startup the same as charging $9/month for a service they need -- except in advance, before there is a service?
  • mbreese 15y ago
    In this context, crowdfunding is a large group of people pooling small amounts of money for an equity stake. This is relatively new and it hasn't been done yet. The OP was basically asking if there would be a new YC fund that would be open for the masses to 'micro invest' in. This is in contrast to Kickstarter is crowdfunding where you pre-order the product.
    • codinghorror 15y ago
      I guess the investment part is a bit crazy (how would you even manage having thousands of "investors"), but the pre-payment part doesn't seem to be.
  • tptacek 15y ago
    You can do that today without selling equity.
• erichocean 15y ago
  On the other hand, pg is clearly "talking his book" with his response. I'm not saying he's wrong, but as a matter of principle, people should take his position with at least a grain of salt. Same with VCs who are opposed to incubators like YC (in favor of VCs).
• waterlesscloud 15y ago
  Crowdfunding doesn't necessarily mean large numbers of investors.
• forgottenpaswrd 15y ago
  "For startups, having large numbers of investors is bad," Who says that it has to be large numbers. In kickstarter they are $1 pledges and $1000, $5000 pledges. You could have thousands of people around the world hear your pitch and decide investing on you. "and having inexperienced investors is bad" Who says that they have to be inexperienced. Do you really believe that the people in Bay Area is the smartest and only experienced people in the world?. Maybe they are the smartest and more experienced in USA, but the world is bigger than USA. Who says that startups could not decide who they let invest on them?. (investors also pitching their selves). And pick experienced ones?. Crowfunding is not only about large numbers of people, but also about removing frontiers. Even if they are inexperienced, Paul, Did you were born knowing it all? People could learn like you did.
  • elemeno 15y ago
    "Experienced Investor" often has quite specific meanings - namely that the investor fully understands all the risks involved in an investment. This generally goes beyond just knowing that there's a risk involved but also understanding the risk profile and where the risk comes from and any liabilities and responsibilities that might come with the investment and being able to afford the downside risk involved as well (for example, if you buy a cross currency interest rate swap you might find that extreme FX moves blow the position out of the water and leave you on the hook for far larger payments than anticipated). Experienced in this sense doesn't really mean that you've done it before, it means something far closer to "can read and understand the whole prospectus and afford to lose the money".
• kaitocracy 15y ago
  I think capital structure is an important consideration in the determination of whether or not a large number of investors is "good" or "bad". Under traditional methods of capitalization you don't want a large number of investors because each investor is another person that you need to clear important business decisions with (for example if you wanted to raise another round of funding). In this system you can almost view an investor as a partner in your venture. However there is no need to carry this over to the crowdfunding domain. It can be quite easy to reserve a class of shares with the typical rights that traditional investors would require while creating a new class of shares (with much more limited shareholders' rights) to be distributed to crowdfunding investors.