Ask HN: Interested in buying shares in startup? | Hacker News Reader

Ask HN: Interested in buying shares in startup?

5 pointsthepanister8 comments

Hello,

If you find an opportunity to buy shares in a startup that could have a promising future, will you do it?

I have a startup that stills under development, and I am thinking of deviding it into shares and sell these shares to others. I am thinking of selling my startup at $40,000 valuation. And I will make 10,000 shares, so I will sell the share for $4.

I think it's legal to do such a thing, but the problem is about documenting the investors' rights! I am sure that legal papers cost so much of money.

Also I will be committed to buy back your shares from you within a year, if the startup does not acheive the target.

Also I will make a blog for investor relations, and I will keep shareholders with all the informations honestly, and I will keep them updated, and I will be very clear with them.

My question is: If you see such opportuinty, will you be ready to buy shares?

I am running out of money, and I need any money! If I don't need money urgently, I would not really do such a thing!

I can go and collect donations online, but I don't like to do such things. I will make a demo of my startup available within 2 days. Do you think that this is a good idea?

P.S.: I am from Egypt, and I can't apply for YCombinator, if you ask me: Why don't you apply for YCombinator! It's visa problems, and when I talked to JL about 2 months ago, she told me that they can't do it remotely.

EDIT: I am NOT going to use the money that I will raise to buy a new car or get new clothes! I am owed to someone with $2000, and I have to pay it to that person... or I am not sure what the problems that I will face!

EDIT: I will sell only 500 shares of the total shares [worth $2000], so even if it does not work, I would be able to buy back the shares from you after year if it does not make a success. I am doing my best to be honest with you, and I will only do things that I can afford!

You can buy as low as 1 share, and if it makes success after a year, I will buy your shares from you with a higher price... whatever the evaluation of my startup will be!

You really need to talk to a securities lawyer. If the above could be construed as advertising your share offering, you've just triggered one of the requirements for SEC registration. The legal fees involved would be in the tens of thousands of dollars, way more than what you're hoping to raise.

There are ways to do this as an unregistered offering, but that restricts you to friends and family, "accredited investors" (see http://www.sec.gov/answers/accred.htm), and a few others - definitely not strangers on the internet.

Thank you so much for providing me with the valued legal info. I am not interested in doing it illegally.

But on the other side, if the legal work papers for documenting the investment will cost a fortune and has many restrictions, and I won't even be able to do it because I am not in U.S....

Is it possible to treat the shares as virtual product? What about if I work around this and say... yeah these are shares but we will treat it as virtual product, just like the virtual gifts that people buy on facebook and hi5.

But you will take advantage of buying this virtual product/gift, that you will be able to resell it to me after a year with higher price, or you can keep it and get devidends...

And by buying the virtual product, you own percentage in the startup...

What do you think?

If you sell the shares in the US without complying with securities law, investors can sue you (personally, not the company) to recover their money if it goes south. The fact that the government can order the transaction be unwound at any time will also discourage any investors, since it could potentially eliminate any upside for them.

You can call the shares whatever you want, but if the SEC deems them securities, they're securities. For an example of this, Prosper (a P2P-lending site) recently got nailed and is facing huge fines and several lawsuits over what they called "loan notes" and the SEC later said needed to be registered as securities. See:

http://fred93blog.blogspot.com/2008/11/prospercom-sec-cease-...

(Please don't take any of what I'm writing as legal advice, you really need to talk to a lawyer. There are ways to go the friends-and-family route that aren't horribly expensive.)

Thank you so much for taking time to help me, I really appreciate it so much.

About the SEC, I saw that PayPal started something... they take the money you have in your paypal account, and use it for invesments, and it's NOT covered by SEC. I read that at PayPal.

What do you think?

EDIT: About lawyers, well... believe me, I have no money! I am not raising the money for the sake of raising money, because I think that raising funds is a "serious responsibility", but I am raising it because I am running out of money, and I am owed!

Seems like a potshot -- What would it take for you to flesh out your profile a bit so we can learn more about you?

Also, most won't "invest" in a company without knowing every damn thing -- including current/projected financials, competitors, etc. Good luck and hopefully you'll get what you need :)

I know that investors want to know everything about what they invest in...

I am just discussing the idea, I want to know if it's possible to do it or not. I am not here to sell the shares, I just want to know the opinion of the people... would they buy in it or not?

Potshot? And why companies really go public and raise funds? Don't they do it for "potshot"? As I know, that any company goes public and have stocks, they do it to get cash money quickly to invest in their infrastrucutre or implement new plans, just instead of applying for loans from bank. Am I right or wrong?

I'd buy in, but not blindly and not without documentation. Honestly, I don't know how the legalities would work. As to the rest of your questions....

Take this as you will:

Going public actually serves more of a function than just getting an inflow of cash. For example, it can give existing shareholders of a company more liquidity -- it is difficult to figure out a price to buy and sell stocks of a company that isn't publicly traded, but relatively straightforward for a company that has marketable shares. I think venture capitalists call it an exit.

But there also exists a case where a company would like the added publicity that comes from offering an IPO. Especially in the currently frozen IPO market, anyone going that route will make a large splash (even more if they belly flop).

It's been stated before, but selling equity is considered the most expensive way of raising money: you're giving away ownership and control in exchange for cash. As much as you can, you'd prefer to get money from loans and bonds, but that isn't always an option. If your balance sheet and income statement are weak, a creditor may not give you the loan you need, or may charge an exorbitantly high interest rate. It really depends on your individual situation as to what you want to do and what the market will let you do.

Yes, there is risk involved in going public, but good advice should help you minimize this risk. Say you're Big Company A that's privately owned. When you decide to go public, you call up the investment bankers and ask for help. They'll hook you up with the large investors (hedge funds, pensions, etc) and work out ways to protect you from the downside. One of these methods is called the "Green Shoe" (named after a company). Basically, you allow for an overallotment of stocks you're going to receive. Then, the investment bank borrows this overallotment (typically 15% of what's going out) and sells it to other investors. Now, when the IPO is going through, therAPPINSDRMWB19222e already exists demand to buy this stock -- the investment bank needs it to return to original stock holders. Here's how the mechanics work: If the stock price goes up after the IPO (it's so-called well received), then the bank buys the stocks from the company and everyone is happy. If the stock price goes down, then the bank buys from the people who are selling -- creating a demand, and helping to stabilize the price.

There's a lot of fun financial stuff in there, but I hope that answers a bit of your questions.

imo, yes, provided there's enough information on the startup available.

having said that, i feel that there is a startup/business concept available here (if it doesn't already exist). something similar to prosper.com, except with equity for startups.

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