5 ms·

Investment Crowdfunding is A Ghetto Stock Market

37 points by acremades 14y ago

sas1ni69 14y ago
Has to be the most elitist thing I've read in a while.
rdl 14y ago
I initially assumed "Ghetto Stock Market" meant "a stock market which allowed participation by or restricted participation to Jews", which really made no sense.
- mkr-hn 14y ago
  Ghetto means something different (but similar) now: http://www.urbandictionary.com/define.php?term=ghetto http://www.urbandictionary.com/define.php?term=ghetto
deleted 14y ago
[deleted]
Eduardo3rd 14y ago
Dropping the limit on income to become an early stage investor is bad because... accountants are expensive?! There are a lot of reasons not to crowdfund your startup, but this article misses all of the big ones. I'd love to see a well written treatment of this topic once the new regulations go into effect. Hopefully Forbes can find a better perspective on the topic by then.
- wmf 14y ago
  Agreed. Nobody expects startups to pay dividends, so that part of the article seems like a red herring. I would hope that the same level of due diligence that angels would perform today ends up getting done in the case of equity crowdfunding. I have a suspicion that equity crowdfunding will be the "funding of last resort" (because it's "dumb money") and that's why it will be a ghetto.
  - joewallin 14y ago
    exactly...whoever heard of startups paying dividends?!
kevinpet 14y ago
The best he can come up with is "the dividend paperwork will be a hassle"? Can't we at least get people up in arms about adverse selection and lack of information?
dictum 14y ago
Some people want to make small investments in new startups for the same reason people play the lottery: there's a very small but real chance of winning something. It's not a margins game like buying stocks of big corporations in the stock market in which you buy and hope it appreciates 20%, then sell it. It's buying stocks with a 99,95% chance the business will tank in 2 years and you'll only recover 5% of what you invested, but with 0,05% chance you'll get a 2000% return on your investment. Particularly, if I had money I wouldn't want to invest in a startup without actually meeting the founders and seeing the company for a while, but if people have the money and want to play with chances, more power to them.
hkmurakami 14y ago
I didn't know you were allowed to use "bareback" in (supposedly) legit journalism
- rdl 14y ago
  It's Forbes, so it's essentially a blog.
- olefoo 14y ago
  It's definitely appropriate if you're talking about the practice itself; slightly less so if you're using it metaphorically. But you know what? The boundaries of what's appropriate and not are culturally constructed, you should be able to use the word "belgium" in a serious screenplay if the intent is artistic enough.
ballard 14y ago
The lack of regulations makes crowdfunding simpler, riskier and generally more awesome. The trashy opinion piece assumes that people are not educated or "qualified investors" enough to throw their dollars into something, like a European-paternalistic view... this is fundamentally anti-capitalistic. Regulations, through the use of lobbyists, serve incumbents whom which to defend their business models with the durable advantage of higher fees, more rules and more paperwork. They may also naturally be against anything which would threaten their oligopolic hegemony. Fodder for discussion: What are the risks of crowdfunding? Could the next pebble-like project/startup not deliver, or is there enough pressure to assure follow-through?
- carbocation 14y ago
  > Regulations, through the use of lobbyists, serve incumbents whom which to defend their business models with the durable advantage of higher fees, more rules and more paperwork. They may also naturally be against anything which would threaten their oligopolic hegemony. You're talking about "regulations" but you're really describing regulatory capture, which is the dark side of regulations. Regulations do actually serve their desired purpose, sometimes.
  - hippobravo 14y ago
    The key is making sure that the regulated and the regulators are different people. Americans seem to believe that the best people to regulate corporations are the lobbyists of those same corporations. This would be a lot funnier if these same corporations weren't currently guaranteeing that most major cities on earth will soon be flooded by the oceans. The most important regulators on the planet have spoken: scientific facts ain't real.
joewallin 14y ago
Flashy headline; but piece was just not substantively there....
eth 14y ago
The author's underlying point, that crowdfunding is not the godsend that many think it to be, was lost in a poorly chosen post title and a poorly formulated rant. Simply put - investors via crowdfunding need to recognize the risk they are assuming. Likewise, companies choosing to raise funding from non-accredited investors need to recognize the costs and extra steps associated with IRS and SEC compliance. The author's "quick overview of basic problems that investment crowdfunding faces", interestingly makes no mention of the implications of crowdfunding on companies that would previously be deemed by professional investors as non-fundable. At this point, it's too early to write off crowd-funding simply as a bad idea - especially without any inkling as to how the SEC even plans to address it. Personally, I hope Mr. Kang ends up eating his hat. But time will tell...
bsbechtel 14y ago
The points made in the article may be legitimate (although the language is somewhat sensationalistic), but if someone chooses to invest in these companies, ignorant or not of the risks involved, they are the only ones who are hurt. This is much better than only allowing Wall St investors who are using other people's money and skimming significant commissions off the top to do the same thing, costing retirees their pensions in the process. Eventually people will learn, and most smart investors will stay away from sites such as these. Many regulars to HN are excited about the JOBS act because it means additional access to capital, but I think it also means more freedom in the investment world, which means more closely tying the risks to the rewards of investment, which seems to have been misplaced in the investment world today.
girvo 14y ago
Jesus H. Christ that article was terrible. I didn't realise Forbes let you blog under their brand now. What a terrible way to dilute it... Anyway. Kickstarter is not a "lay-away" or "presale" website. > It constantly boggles my mind that people are funding > projects on a platform or company on the internet that has > a policy of “No Refunds.” Want to know why, mate? Because you're not "ordering" anything. The rewards are an admittedly nice bonus; the real reason is to see something that you wish existed come into being. To give products/creations a chance to be made, that might not have the mass appeal that would be required to hit the mainstream market. Absolute crap. > Please let me know your thoughts! If you think I’m wrong, then publicly > flog me for my ignorance and I will fully accept the err in my ways. Oh, and he's an arrogant S.O.B. too. Apologies for the anger, everyone. This really pissed me off.
- rdl 14y ago
  A lot of people genuinely treat Kickstarter for hardware projects as a pre-sale website. He's wrong on other stuff, but on that point essentially right.
  - girvo 14y ago
    I guess that is somewhat true, however KS have deliberately attempted to move away from that idea for hardware goods lately. Whether they've been successful in doing so, I guess not.
- saosebastiao 14y ago
  No apologies necessary. I couldn't even stomach reading halfway into the first page.
- quant18 14y ago
  Incidentally, the author is pretty active on Hacker News: https://news.ycombinator.com/user?id=camz https://news.ycombinator.com/user?id=camz > I didn't realise Forbes let you blog under their brand now In fact that's been their exact business model for a while. Good March 2012 article on that: http://www.poynter.org/latest-news/top-stories/173743/what-the-forbes-model-of-contributed-content-means-for-journalism/ http://www.poynter.org/latest-news/top-stories/173743/what-t...
anonymousab 14y ago
And that's what makes it great. Crowdfund a videogame or product and the dev screws up? Or runs away with the money? Even if they "escape", their reputation is obliterated. The threat of that notoriety seems to be a good replacement for investor overbearance so far.
- wmf 14y ago
  Not necessarily. Remember, "Silicon Valley celebrates failure".
olh 14y ago
New socioeconomic dynamics: too much for some brains.
wissler 14y ago
Heaven forbid that the mere peons have some kind of freedom in investing and creating things. We neo-feudalists can't have that now can we.
- hippobravo 14y ago
  If Wall Street doesn't get a cut, it's an immoral business practice! By bypassing Wall Street, you're actually stealing profit from the too-big-to-fail investment banks. This threatens those banks with failure, and their failure will result in a crash of the global economy and require another bailout by the taxpayers. Therefore engaging in crowd funding is a threat to America and clearly a form of economic terrorism.
yeison 14y ago
What a coincidence that the author of this article is the founder of "a company that automates taxes for small & mid-size businesses." ( the quote comes directly from his Forbes profile). To me there is no doubt that the article was published intentionally and solely for the purpose of promoting his business and the problems it is trying to address.
niggler 14y ago
Can we agree, as a community, that Forbes is linkbait and not up vote these articles? *funny, i wrote this three weeks ago (https://news.ycombinator.com/item?id=5272564 https://news.ycombinator.com/item?id=5272564)
keithvan 14y ago
A very interesting way to use the word ghetto. I even had to google just to make sure that it wasn't an obscure academic term, that the author wasn't using ghetto in its slang form for an article headline for a Forbes blog. Think of it this way, a CPA audit is like using a condom that you poked with a needle. In theory, it’ll protect you from most of your problems, but not really. This also had to be one of the worst analogies I've ever read in regards to the purpose of public accounting and audits. Audits are not to prevent fraud -- they are to detect fraud and also give assurance. It is not a condom, it is more like a medical check-up so you can tell the world that you are healthy.
flyinRyan 14y ago
How can anyone not see that Crowdfunding will be the future one way or another. Why let some out of touch VCs pick who gets to play when you can ask your potential customers?
DennisP 14y ago
The JOBS Act actually raises the crowdfunded investment limits for companies that submit to an audit. And it's worth mentioning that Europeans can make these sorts of investments already, they don't have our "accredited investor" restrictions. They seem to do all right. Complaining about an early-stage startup not paying dividends is just silly.

37 points by acremades 14y ago

Has to be the most elitist thing I've read in a while.

rdl 14y ago

I initially assumed "Ghetto Stock Market" meant "a stock market which allowed participation by or restricted participation to Jews", which really made no sense.

mkr-hn 14y ago
Ghetto means something different (but similar) now: http://www.urbandictionary.com/define.php?term=ghetto http://www.urbandictionary.com/define.php?term=ghetto

deleted 14y ago

[deleted]

Eduardo3rd 14y ago

Dropping the limit on income to become an early stage investor is bad because... accountants are expensive?! There are a lot of reasons not to crowdfund your startup, but this article misses all of the big ones. I'd love to see a well written treatment of this topic once the new regulations go into effect. Hopefully Forbes can find a better perspective on the topic by then.

wmf 14y ago
Agreed. Nobody expects startups to pay dividends, so that part of the article seems like a red herring. I would hope that the same level of due diligence that angels would perform today ends up getting done in the case of equity crowdfunding. I have a suspicion that equity crowdfunding will be the "funding of last resort" (because it's "dumb money") and that's why it will be a ghetto.
- joewallin 14y ago
  exactly...whoever heard of startups paying dividends?!

kevinpet 14y ago

The best he can come up with is "the dividend paperwork will be a hassle"? Can't we at least get people up in arms about adverse selection and lack of information?

dictum 14y ago

Some people want to make small investments in new startups for the same reason people play the lottery: there's a very small but real chance of winning something. It's not a margins game like buying stocks of big corporations in the stock market in which you buy and hope it appreciates 20%, then sell it. It's buying stocks with a 99,95% chance the business will tank in 2 years and you'll only recover 5% of what you invested, but with 0,05% chance you'll get a 2000% return on your investment. Particularly, if I had money I wouldn't want to invest in a startup without actually meeting the founders and seeing the company for a while, but if people have the money and want to play with chances, more power to them.

hkmurakami 14y ago

I didn't know you were allowed to use "bareback" in (supposedly) legit journalism

rdl 14y ago
It's Forbes, so it's essentially a blog.
olefoo 14y ago
It's definitely appropriate if you're talking about the practice itself; slightly less so if you're using it metaphorically. But you know what? The boundaries of what's appropriate and not are culturally constructed, you should be able to use the word "belgium" in a serious screenplay if the intent is artistic enough.

ballard 14y ago

The lack of regulations makes crowdfunding simpler, riskier and generally more awesome. The trashy opinion piece assumes that people are not educated or "qualified investors" enough to throw their dollars into something, like a European-paternalistic view... this is fundamentally anti-capitalistic. Regulations, through the use of lobbyists, serve incumbents whom which to defend their business models with the durable advantage of higher fees, more rules and more paperwork. They may also naturally be against anything which would threaten their oligopolic hegemony. Fodder for discussion: What are the risks of crowdfunding? Could the next pebble-like project/startup not deliver, or is there enough pressure to assure follow-through?

carbocation 14y ago
> Regulations, through the use of lobbyists, serve incumbents whom which to defend their business models with the durable advantage of higher fees, more rules and more paperwork. They may also naturally be against anything which would threaten their oligopolic hegemony. You're talking about "regulations" but you're really describing regulatory capture, which is the dark side of regulations. Regulations do actually serve their desired purpose, sometimes.
- hippobravo 14y ago
  The key is making sure that the regulated and the regulators are different people. Americans seem to believe that the best people to regulate corporations are the lobbyists of those same corporations. This would be a lot funnier if these same corporations weren't currently guaranteeing that most major cities on earth will soon be flooded by the oceans. The most important regulators on the planet have spoken: scientific facts ain't real.

joewallin 14y ago

Flashy headline; but piece was just not substantively there....

eth 14y ago

The author's underlying point, that crowdfunding is not the godsend that many think it to be, was lost in a poorly chosen post title and a poorly formulated rant. Simply put - investors via crowdfunding need to recognize the risk they are assuming. Likewise, companies choosing to raise funding from non-accredited investors need to recognize the costs and extra steps associated with IRS and SEC compliance. The author's "quick overview of basic problems that investment crowdfunding faces", interestingly makes no mention of the implications of crowdfunding on companies that would previously be deemed by professional investors as non-fundable. At this point, it's too early to write off crowd-funding simply as a bad idea - especially without any inkling as to how the SEC even plans to address it. Personally, I hope Mr. Kang ends up eating his hat. But time will tell...

bsbechtel 14y ago

The points made in the article may be legitimate (although the language is somewhat sensationalistic), but if someone chooses to invest in these companies, ignorant or not of the risks involved, they are the only ones who are hurt. This is much better than only allowing Wall St investors who are using other people's money and skimming significant commissions off the top to do the same thing, costing retirees their pensions in the process. Eventually people will learn, and most smart investors will stay away from sites such as these. Many regulars to HN are excited about the JOBS act because it means additional access to capital, but I think it also means more freedom in the investment world, which means more closely tying the risks to the rewards of investment, which seems to have been misplaced in the investment world today.

girvo 14y ago

Jesus H. Christ that article was terrible. I didn't realise Forbes let you blog under their brand now. What a terrible way to dilute it... Anyway. Kickstarter is not a "lay-away" or "presale" website. > It constantly boggles my mind that people are funding > projects on a platform or company on the internet that has > a policy of “No Refunds.” Want to know why, mate? Because you're not "ordering" anything. The rewards are an admittedly nice bonus; the real reason is to see something that you wish existed come into being. To give products/creations a chance to be made, that might not have the mass appeal that would be required to hit the mainstream market. Absolute crap. > Please let me know your thoughts! If you think I’m wrong, then publicly > flog me for my ignorance and I will fully accept the err in my ways. Oh, and he's an arrogant S.O.B. too. Apologies for the anger, everyone. This really pissed me off.

rdl 14y ago
A lot of people genuinely treat Kickstarter for hardware projects as a pre-sale website. He's wrong on other stuff, but on that point essentially right.
- girvo 14y ago
  I guess that is somewhat true, however KS have deliberately attempted to move away from that idea for hardware goods lately. Whether they've been successful in doing so, I guess not.
saosebastiao 14y ago
No apologies necessary. I couldn't even stomach reading halfway into the first page.
quant18 14y ago
Incidentally, the author is pretty active on Hacker News: https://news.ycombinator.com/user?id=camz https://news.ycombinator.com/user?id=camz > I didn't realise Forbes let you blog under their brand now In fact that's been their exact business model for a while. Good March 2012 article on that: http://www.poynter.org/latest-news/top-stories/173743/what-the-forbes-model-of-contributed-content-means-for-journalism/ http://www.poynter.org/latest-news/top-stories/173743/what-t...

anonymousab 14y ago

And that's what makes it great. Crowdfund a videogame or product and the dev screws up? Or runs away with the money? Even if they "escape", their reputation is obliterated. The threat of that notoriety seems to be a good replacement for investor overbearance so far.

wmf 14y ago
Not necessarily. Remember, "Silicon Valley celebrates failure".

olh 14y ago

New socioeconomic dynamics: too much for some brains.

wissler 14y ago

Heaven forbid that the mere peons have some kind of freedom in investing and creating things. We neo-feudalists can't have that now can we.

hippobravo 14y ago
If Wall Street doesn't get a cut, it's an immoral business practice! By bypassing Wall Street, you're actually stealing profit from the too-big-to-fail investment banks. This threatens those banks with failure, and their failure will result in a crash of the global economy and require another bailout by the taxpayers. Therefore engaging in crowd funding is a threat to America and clearly a form of economic terrorism.

yeison 14y ago

What a coincidence that the author of this article is the founder of "a company that automates taxes for small & mid-size businesses." ( the quote comes directly from his Forbes profile). To me there is no doubt that the article was published intentionally and solely for the purpose of promoting his business and the problems it is trying to address.

niggler 14y ago

Can we agree, as a community, that Forbes is linkbait and not up vote these articles? *funny, i wrote this three weeks ago (https://news.ycombinator.com/item?id=5272564 https://news.ycombinator.com/item?id=5272564)

keithvan 14y ago

A very interesting way to use the word ghetto. I even had to google just to make sure that it wasn't an obscure academic term, that the author wasn't using ghetto in its slang form for an article headline for a Forbes blog. Think of it this way, a CPA audit is like using a condom that you poked with a needle. In theory, it’ll protect you from most of your problems, but not really. This also had to be one of the worst analogies I've ever read in regards to the purpose of public accounting and audits. Audits are not to prevent fraud -- they are to detect fraud and also give assurance. It is not a condom, it is more like a medical check-up so you can tell the world that you are healthy.

flyinRyan 14y ago

How can anyone not see that Crowdfunding will be the future one way or another. Why let some out of touch VCs pick who gets to play when you can ask your potential customers?

DennisP 14y ago

The JOBS Act actually raises the crowdfunded investment limits for companies that submit to an audit. And it's worth mentioning that Europeans can make these sorts of investments already, they don't have our "accredited investor" restrictions. They seem to do all right. Complaining about an early-stage startup not paying dividends is just silly.