Why Don't Startups Get Their Users To Invest In Them?

When the users are the owners it's a co-op. No need for a stock market there. A lot of grocery stores in BFN are co-ops.

I think it's potentially a good model for some businesses, for example those that do not require a large amount of R&D spending, or where this is not a race to the bottom as happened with stock exchanges.

No, that's all wrong. There are business that seek direct investment -- including specifically from their customers -- without being publicly traded on any exchange; they obviously have to comply with general securities laws, but do not have to deal with anything applicable specifically to publicly-traded companies or particular exchange rule, and obviously don't have an IPO first as they aren't public.

Neither being widely held (having lots of individual shareholders) nor seeking direct equity investment from your customer base requires you to be a publicly traded firm.

The problem is that those regulations makes impossible for small companies to IPO. The Government must think harder on how to make them more affordable. Others stock markets are not so costly.

If you use an IPO as a source of fund raising, it seems like you'd have little trouble using the stock market to do this very thing- allow your users to invest in you.

And when they're implemented, the politicians the existing large players hired via campaign contributions are very careful to make sure the regulations favor the existing large players who pay the politicians bills, in other words the exact opposite of startups. So that's probably not going to end well for the startup.

PS: Fees are the #1 problem for small time investors. It's generally more important to reduce fees than it is to spend a lot of time investigating companies. http://www.forbes.com/sites/moneybuilder/2012/06/20/how-to-i...

I'm guessing this could be done in the UK - we have a few major co-ops here; is the US the same?

I know the idea is a bit muddled. Something along the lines of working on Linux reduced opportunity costs compared to alternatives.

Or you could just, i dunno, charge for the service.

What is "NRE" in this context?

No. There may be a lot of people pursuing that sort of thing, but there are plenty of startups selling "stuff" (whether it's software or something else) to people with money to spend (probably businesses) for real money.

Don't fall for the silicon valley groupthink / herd mentality BS. Building a company that makes money the old fashioned way is still very feasible, and - IMO - always will be.

The person(s) who signed that cheque probably had done dozens like it before and dozens like it afterwards - whoever they were, and like hundreds of other senior corporate radicals across the globe, they take the one thing scelortic huge companies have plenty of (money) and push it back to nimble innovative companies. Its an investment in all but name. And it pays everyone dividends when it works.

seriously - if you want investment from your customers, find the big names in your email list.

what a radical idea. it'll never catch on.

Also, it's really hard to predict how much users are willing to pay for distraction and entertainment. There are some sites I get value from (e.g. buying/selling or booking things) but the vast majority is just entertainment.

Startups can talk directly to potential investors, both non-accredited and accredited investors (how many non-accredited investors can invest in them depends on which of the exemptions from registration requirements they are taking advantage of), all current registration exemptions however, prohibit general solicitation and advertising and solicitation except that certain state-law conditions can allow general solicitation and advertising for Rule 504 "seed capital" fundraising.

The update the SEC must make under the JOBS Act for general solicitation would remove the general solicitation restriction for offerings that are restricted to accredited investors where the offering firm takes certain steps to verify that any investors qualify as accredited investors. There's also a crowdfunding option that requires an SEC-registered intermediary (and has overall limits similar to the existing seed-capital option in Rule 504.)

Its not clear to me that either is necessary (or even helpful) to a company that wishes to conduct direct solicitation directed to purchasers of the company's existing offerings who are not necessarily qualified as accredited investors.

That should be an "and" not an "or" (meeting either the income test or the asset test qualifies for "accredited investor" status.)

And there are several conditions under which firms can make accept limited numbers of non-accredited investors along with unlimited numbers of accredited investors.

> The JOBS act loosened the regulations to open it up to anybody

That's not entirely accurate. The JOBS Act requires the SEC to do two main things in this area: 1. Remove the requirement prohibiting general solicitation and advertising for investment opportunities, if those opportunities are restricted exclusively to accredited investors and the firm seeking the investments takes steps to verify that the investors qualify as accredited investors. 2. Allow "Crowdfunding" with specified per-investor limits of up to $1 million in a 12 month period, via an SEC-registered intermediary.

Neither of these really opens things up to people who couldn't invest before: the first option allows public advertising but is expressly restricted to accredited investors; the "Crowdfunding" option is basically similar to the Rule 504 "seed capital" option, both of which have a $1 million in a 12-month period limit, and neither of which is restricted to any particular class of investors ("seed capital" restricts general solicitation but allows the firm to sell securities directly, "crowdfunding" allows general solicitation but requires the firm to act through an SEC-registered intermediary.)

That's not to say there aren't some wealthy people out there whose only successful product was stock, but at least they were forced to do it through proper channels and often endured the boilerplate shareholder lawsuit that's in the top drawer at certain law firms during economic downturns.

That said, how do Co-ops work? As well as companies like REI or Vanguard? Purchasing an REI membership makes you a holder of the company, and same thing with Vanguard funds... or many credit unions. Is there a reason why the JOBS act was needed when customer-owned businesses already existed?