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To Turn The Crowd Into Venture Capitalists, FundersClub Raises $6M Seed Round
- stanfordkid 14y agoI don't think this will work well for investors. The best deals in Silicon Valley go to the best angels who generally don't need a website to be able to get in on the deal. There is no shortage of access to capital for proper companies in SV. The investors who put in small amounts of capital generally aren't going to see returns on investment because startups are just too risky. Look at CircleUp for what I believe is a better model -- crowd funded capital for semi-established consumer brands.
- phillmv 14y agoCrowdfunding startups has always sounded to me like the best way to hide risk from retail investors seeking a quick buck since the invention of the mortgage backed security credit default swap.
- patio11 14y agoRetail investors did not buy those. The closest they got was either a) houses backed by ARMs made economic by mortgage-backed securities or b) shares in the publicly traded megabanks which held billions of mortgage-backed securities.
- jivatmanx 14y agoCan someone explain to me why you need to make 200k/year or have 1 Million in assets to participate in this when the minimum funding level is only 1k? I want to participate in this, but can't.
- greattypo 14y agoThey've limited participation to so-called accredited investors (with minimum income or assets as defined by the SEC). There are non-trivial regulatory requirements that come with accepting money from unaccredited investors, so many (most?) startups do the same.
- jivatmanx 14y agoBasically, "Because it's an SEC regulation" OK, then I understand why this company and other start ups follow this rule. But not why the rule is in place in the first place. To me, it sounds extremely discriminatory that any government regulation would have a fixed income or asset level requirement.
- aaronblohowiak 14y agoThis regulation exists for consumer protection. Prior to this regulation, people were conned out of their money by investing in companies that may have been a sham. This does imply that rich people are less prone to hucksters than the poor (or that it is more acceptable for them to lose their investments..) Recent legislation changes this so that anyone can invest up to a percentage of their annual income, while rich people are unbounded in the amount they can invest. Editorializing, I think this is a good compromise.
- 001sky 14y agoA liberal paraphrase might boil down to the old adage: Don't make a bet you can't afford to lose Back in the day, people presumably "bet the farm" on XYZ shady investment. Since the farm was all they had, it was a bet they could not afford to lose. But obviously 9/10 startups fail to be great investments. So, as public policy, the Gov't didn't want 9/10 farmers to go bankrupt. a Rich guy will a $$$ minimum assets can still lose a "farm" and have something left (ie, diversification). Becuase the rich guy can (in theory) have scope for more investments (experience) and/or to pay advisors (expertise), they are seperated out. Note that there are lot of unsophisticated rich people and/or investors in certain areas that have varying levels of sophistication (empirically). But with the privelege of wealth come the obligation to realize caveat emptor, vis-a-vis public policy.
- billirvine 14y agoMassive, scary legal risk here. This won't last long.
- brandnewlow 14y agoI'm sure you have your reasons for thinking this, but having read Hacker News for 4-5 years now, whenever people start making claims of startup failure based on legal risks, for me that's now a pretty sure sign of a winner-in-the-making.
- staunch 14y agoPayPal (banking laws), YouTube (copyright laws), Airbnb (hotel laws), Uber (taxi laws), Facebook (FTC privacy laws).
- brandnewlow 14y agoRight. Startups that are "innovating" on what's legally acceptable seem to do pretty well once they reach momentum. We can certainly debate the "rightness" of it, but the fact that there's a debate there is a real obstacle to keeping out other players.
- billirvine 14y agoThose are nothing compared to SEC laws and IRS requirements. Run afoul of them, and prison is in the cards. And PayPal didn't break any banking laws, only ran into parochial issues in some states. And Uber is having trouble too, aren't they?
- Evbn 14y agoAirBnB does pretty well on an IRS-flouting (and similar state-level authorities) business model.
- billirvine 14y agoAirBnB doesn't have any IRS issues (at least not that I've heard of). Their problems stem from being an enabler within an industry that typically requires licensing... and doing so to rent properties for fewer than 30 days without permit (required in some areas). Yeah, the law seems preventative, but it's in place as a zoning issue to prevent a bed and breakfast from popping up in your mom's cul-de-sac. AirBnB is a good idea, running up against zoning laws that are also (generally) good ideas.
- adebelov 14y agocongrats to a great team and amazing execution! FundersClub isn't the first in the space, but it's definitely the first to gain so much traction in such little time. I hope they keep killing it!
- 001sky 14y agoFundersClub firmly believes it’s legal because it never handles the money directly, instead raising money for a venture fund that funnels into a startup. -- Intersting. This sounds more like lead-gen.
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- interg12 14y agoI'm incredibly skeptical of the weak term sheets that would come out of this process. It looks like the crowd gets dilutable stock with no option for next round priority investing. Best of luck on their success - I hope my initial take is wrong, because this would be exciting at scale.
- Evbn 14y agoSo much for dogfooding...
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