FundersClub Ditches Dumb Money By Going Invite-Only | Hacker News Reader

FundersClub Ditches Dumb Money By Going Invite-Only

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55 pointsmittal16 comments

This is hilarious because it's right out of the ponzi playbook - financial scammers love to make their schemes invite-only since it gives clients the feeling that they're part of an exclusive club and makes them less likely to question the investment.

I doubt that FundersClub is a ponzi or even a scam in the legal sense, but it's entirely possible you'd have to be a sucker to invest and there there will be shadier imitators that are outright scams looking to pick up the people who can't get into FundersClub, especially if the JOBS Act is implemented and they can seek money from the general public.

So you "doubt" that FundersClub is a ponzi scheme or scam (a very very serious accusation), yet you accuse them of employing the same tactics?

By definition, a scam intends to mislead .. it pretends to be what it is not. So if FC does not intend to mislead, it's an honest business and you have no reason to tar it's reputation with the words you've used.

Regardless of what you think of the JOBS Act (which in many reasonable interpretations is a boon to those who would not otherwise be exposed to the opportunities now exclusive to the so called "1%"), it is wrong to tarnish FundersClub with the labels you've used, sans some sort of evidence .. which you don't have because FC is not a scam.

What makes you so sure that FC is not a scam?

It's a YC company, I know the founders, who are my batchmates, and they are not a scam. The model they've used to pick startups (I do not know the details) is excellent .. out of our batch they picked many of the most successful companies.

I have no financial interest in FC, btw. I have not invested in any FC co's, though I certainly would if I were in a position to.

Many businesses have characteristics of ponzi schemes without being ponzi schemes. You're right that there is a bright line distinction in some places (i.e., if there is actually a fraud), but why is it wrong to bring up that there is a resemblance in some way?

I'd probably also note that the JOBS act, while it does give additional opportunity, doesn't do much for your ability to assess an opportunity. My colleague Jim Allen gives a good overview:

http://blogs.cfainstitute.org/marketintegrity/2012/09/07/job...

doesn't do much for your ability to assess an opportunity

This is YOUR responsibility as an investor, not the governments'. I'd rather not have a government limiting my freedom in the name of protecting me for my own good.

Heh, a lot of snark in the comments tonight :-)

I think this is a pretty smart move, mostly because I think there will be an interesting correction when folks realize that most startups return $0, its the outliers that return outsized returns. And the first sob story we get about how someone took their 401k they spent the last 15 years building and losing it all in start-up investing is going to be paraded about for the rage views and that is going to just be annoying.

I'm still not convinced that you aren't better off taking "dumb money", as long as they "dumb money" investor doesn't try to act like a "smart money" investor. Maybe I'm just arrogant (OK, I know I'm arrogant, sue me) but the way I see it is: I'm the domain expert in my space, and investors are domain experts in, well, investing. So why do I want somebody who probably doesn't know anything about what we're doing in terms of customers, market, product, etc., trying to throw their weight around and shape the direction of the company?

I find myself wondering if it wouldn't be better to look for somebody who's as dumb as a brick, but hands-off. Essentially, somebody who says "here's X thousand dollars of my money, go make me more money with it".

As opposed to "Here's X thousand dollars of my money, and why don't you pivot to market 'Y', and maybe you should make this little change to the product roadmap, and BTW, I have this old buddy of mine who would make a great CTO..."

Honestly, the only real reasonable sounding argument I've heard yet for wanting involved, hands-on investors is so they can make introductions / open doors for you. But if you're relying on your investors to get you in the door of your customers, well, that sounds like a "red flag" to me.

shrug

That's not how it works, at least with angels. The expectation is usually you put the money in, and if the company needs advice or help with something they'll ask you. Feel free to give unsolicited advice but don't expect the company to bend to your will.

Because you really need a bunch of people who think they're smart and want to bother you with every idea they have. Especially at the bottom of your cap table.

Because it's so hard to prune all those millionaires.

Invite-only always feels a bit strange to me, in a community where we celebrate the guy who made it alone against the crowd, it seem to foster self-replication. You might end-up with car parks filled with Tesla cars owned by people who all do kite-surf together on the week-end. You've lost the crazy outsider who will shuffle the industry (or make it harder for him).

What about all the 'dumb money' that's already there, i.e. the existing amateur angels? Oh, they'll be the ones vetting the 'smart money' applicants. Good luck with that!

when popularity doesn't work, go for exclusivity.

My guess is that this was just an easier story to sell because they can just approve accredited investors and not have to deal with those who are not due to regulations. They may have planned to make it open to everyone but had to step the plan back a bit.

Why not to let start-up founders decide from whom they want to accept money or not?

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