Invest in Startups
wefunder.com
wefunder.com
In case you guys missed it, the SEC in Title II of the JOBS Act rolled out TODAY. That means startups can now raise funds from accredited investors on Wefunder site itself. This is HUGE but that's not all.
Next summer SEC will roll out Title III which means EVERY SINGLE AMERICAN can now invest in startups for as little as $100. This will be a massive boost for all startups everywhere, especially for non-traditional startups that couldn't get funding before. I'm very excited to see all the new startups coming out of this.
Great job Wefunder! The website looks amazing!
I invest a lot of money for people in my life (for free), so I fairly regularly get emails effectively saying: "Oh look at this stock my friend forwarded to me (pump and dump scam)" which I then have to explain why it isn't going anywhere. So it is already pretty bad (especially on venture exchanges), BUT when thirty thousand startups start taking investments from mom and pop investors the consequences are going to be massive. We're talking tens or hundreds of thousands of dollars from MILLIONS of people. Right into the lap of startups that don't even have a merchant account.
So the lesson here is get in on this early, profit harvest, and get the fuck out before it crashes due to irrational exuberance.
Investments in early-stage startups are highly illiquid so in most cases, getting in early won't mean a thing because you will never be able to get your money out.
I think it's a problem that the rich and well-networked effectively had a government-protected oligarchy to investing in the best private companies. Much of the capital appreciation in this country over the last couple decades went to private companies before they IPO, of which mom and pop investors had no access too... because the government 'protected' them by not allowing them to invest their money where they see fit.
The JOBS Act has a good balance. No one making $90k will be able to invest more than 5% of their income in startups. That makes sense.
But let me play devil's advocate for a moment.
From the standpoint of a founder, I know that raising small chunks of money from lots of investors is more likely to be problematic than it is likely to be beneficial. There are numerous logistical and legal downsides to this.
From the standpoint of an investor, I know that spray and pray investing rarely produces great wealth. And I would have to assume that general solicitation and the willingness to raise money from lots of investors are signals, and not necessarily good ones.
Taking both of these things into consideration, I would have to conclude that companies taking advantage of the JOBS Act to raise money are, in theory, probably going to be less attractive as investments than companies that don't have to. In other words, the JOBS Act might create more opportunities for me, but it would be foolish of me to assume that these are the same opportunities the rich and well-networked have access to.
We've fixed this with WeFunds - our LLC fund that bundles many small investors into a single item on a cap table, relieving the logistical and legal downsides.
We also believe in the crowd as a value-add investor. For example, Casetext (YC S13, SV Angel) is raising on Wefunder because they'd love to have lawyers who are outside the Silicon Valley bubble invest in them.
That may solve a few of the problems with having numerous small investors, but it doesn't solve them all. For instance, if I raise $25,000 each from 20 investors who are spraying and praying with a dozens or more other startups, I have to consider that potentially none of these investors will have the motivation or wherewithal to provide additional assistance (financially or otherwise) if and when I need it.
The most important thing we do is manage a fund that aggregates all of the smaller investors. These investors are actually Wefunder's investors. Wefunder then makes one investment into the startup.
So the startup doesn't have to deal with dozens of investors on their cap table.
Or, put in other words, all the logistical and legal hurdles are placed on Wefunder, not the startup.
For instance, if Wefunder goes broke, do the investments go down with the company or are they all in a separate entity?
Companies with founders who have a fundamental problem with the VC/Entrepreneur relationship may see this as an opportunity to take their business to the people they really want to serve. The visionary customers who will be buying the first release of your product may also be interested in making a (small) early investment in your company.
There's certainly a great deal of risk for these more casual investors. They need to really understand the risk before they get involved, but investors are supposed to be evaluating their risk anyway. Hopefully companies like wefunder will do a good job of helping investors identify risk and opportunity. If they don't, other services will likely take their place.
That's not to say I feel that way. I love that I will soon be able to invest, without being a high net worth individual. Though I've had it pointed out to me that if I were to have my company valued in some way, either by taking funding at a higher valuation or by getting it appraised, I could probably qualify as a high net worth individual and invest already...that's a process I don't want to go through.
I think this is definitely a democratizing influence on capital. Especially since the public markets have become such a late stage fundraising process....Google was already massive when it went public. Many companies I'd like to be invested in aren't public and show no signs of going public. Dropbox is a multibillion dollar company, and isn't public, for instance.
My concern is that weak companies will flood this channel, making it harder for money to be smart...which hurts the market as a whole. But, a lot of big money isn't very smart, either, so I guess we just have to deal with dumb money, no matter what.
The real regulation, imho, should be around truth in advertising and representation. There's not enough of that.
1. "Accommodative" monetary policy has created an ultra low yield environment that has punished savers and made life incredibly challenging for many investors.
2. The environment has "encouraged" (others might use the word "forced") savers and investors to reach for yield and returns.
3. This reach has resulted in capital misallocation and malinvestment and has artificially inflated numerous asset classes from real estate to publicly-traded equities.
4. A good number of investors who have significant exposure to these asset classes have significant gains (realized and unrealized), which influences their investment decisions.
5. Risk is dramatically being underpriced. You don't even need to look at, say, the corporate debt market. Just look at the terms being offered on some of the Wefunder deals and you can see that risk is being underpriced in the angel market.
Making it easier for companies to publicly solicit investment at the same time monetary policy has pushed significant amounts of money into riskier and riskier asset classes may, in hindsight, prove to be a bad combination for investors who are less sophisticated and/or greedy.
Imagine a world where people are conditioned to believe that they can't make a very bad mistake even if they want to. Objectively they should be able to make this mistake, but if we allow them to, who is at fault? Is it the person who allowed them to make the mistake? I don't think so.
Same idea for libertarians. If we all knew we were going to be in the battle pit, we'd all done hardened armour, but we mostly think we'll be ok, so we don't.
But on net (no pun intended) welfare has reduced poverty. Consider limited liability companies and corporations. They can afford to go bankrupt and starve of resources. The free market discipline can apply to them. But when it comes to living beings such as humans, we need to mitigate the loss.
You must make sure the valuation is fair, this means - check the valuation report, check the reputation of the company who did the valuation report, sanity check it, look for signs of bullshit.
Keep in mind, even if the founders have solid reputation there may be some unethical MBA behind the scenes who can act without founders understanding exactly what he is doing.
There are also enough quality investors out there who use signals other than hand-wavy financial reports that you could be spending your time to get.
Whatever numbers you have in your valuation I need to know how you got them to decide if it makes sense.
(Edit: You may be from the UK, so it's a little different than US. I was speaking for the US case here.)
But I realize that your point is that you'd prefer due diligence and transparency on terms before using a site like WeFunder. The thing is, most investments at that stage don't have that much due diligence beyond market size, team, and traction. I think this is where you're misunderstanding.
I am a YC W13 founder and I just raised a 'seed' round. Our investors signed the paperwork as a 'seed' round. We raised >$500k.
- how much money they want to raise. Say $500k.
- how much equity they're prepared to give up. Say 10%.
--> and there you have it. $5m valuation!
Yes, because MBA's have a monopoly on unethical behavior.
http://www.forbes.com/sites/freekvermeulen/2010/11/22/does-a...
This is an unnecessary smear on MBAs. There are bad ones out there, and there are plenty of good ones. Just like with any other degree.
Your points are completely sound, and I agree, but it's time we ended the knee-jerk hatred of those three letters. There are YC-backed startups with MBAs at the helm, and there is an increasing number of engineers with MBAs or dual degrees.
"MBA" is not a job title; it's a degree. I think the term you're looking for is "finance" or "Corp Dev," which is more of a specific job role that often fields MBAs to fill it. Their job is to get the most favorable terms possible in a deal, but not at the expense of the deal itself. So yes, go into a deal with a finance or corp dev person with your eyes wide open -- but they lose more than they gain if they develop a reputation for completely screwing people over again and again. It pays to know what their incentives are, how their firm makes money, and what your alternatives are to a deal with them (and often, your alternatives involve deals with other finance types).
What you enumerate are MBA specializations. The core of every MBA course is about optimization and modeling. There is no argument what to do when you can sell something at price P or 100*P, no matter what kind of MBA you have.
There is a mindset associated with it. It's a personal failure if you miss an opportunity to make more money as an MBA.
Do you have an MBA? Do you know the motivations of every single MBA in the world?
It's not a big leap to assume that MBA students sign up to make more money and have more power. Why don't you tell me what exactly are MBAs after?
MBAs are there to make money, same as every other profession. Do you work for free?
You should just apologise instead of defending yourself.
I am simply arguing the MBA programs teach a certain mindset. Just like being a doctor, an engineer or an arts person are different mindsets. The difference is the guy with the MBA brings value by identifying and taking every opportunity to make money, while an engineer's focus is to build things. An MBA is typically held accountable for missing opportunities like that. And I would be really happy to read what's your take on how an MBA brings value.
Nice one with the sweeping and insulting generalisation. How dare you say that.
It will take a couple of spectacular failures for people to reevaluate current crowd funding model.
I kid, but the flavor is indeed a bit bubbly.
My concern is that non-qualified investors will once again be participating in a complex equities market with technology companies that are pushing the edge of the envelope. That will fund companies that should not be funded, lose money for people who cannot afford to lose it, and create another period of ill will for "tech" investment.
We're optimized for people who love a particular startup because they use the product, but may not be as well networked in Silicon Valley or as familiar with startup financing. Ultimately, we're all about everyday Americans investing as little as $100.
We also have fully-integrated self-service fundraising software, since we're not relying on SecondMarket like AngelList does. This gives us a little more flexibility. Startup founders can use our software to do digital signatures, escrow, investor accredited verification, contract generation, etc, for as little as $100.
So it seems that the modus operandi for an early stage startup would be
* join a well-known incubator, get investments attached to that program, if that fails
* reach out to well-known angels and super-angels, rely on them to syndicate, if that fails
* reach out to not-so-well-known angels and superangels, if that fails
* crowdfunding
It seems that the startups that are attracted to crowdfunding are either those that only need capital and not connections (a rare thing), those that have been spurned by incubators and angels, and those that need more capital than incubators or angels could provide but had been spurned by VCs.
Most of the YC companies do not need capital. Most have raised significant amounts from very well-known investors.
We don't replace the current system of fundraising. We're just another tool founders can use.
We solve the quality problem by making it a no brainer for the startup - quick and fast money from a crowd of passionate users and customers of your product. But only having one shareholder on your cap table.
The main difference is one of long-term vision. FundersClub is invite-only and exclusive. Wefunder is designed for everyone to be able to invest in startups. We're most excited by Title III JOBS Act, which will let unaccredited investors invest as little as $100.
We believe that the true value of crowdfunding comes from having your most passionate users and customers invest, not just C-level execs in an invite-only club who you've never met. The people who love your product can invest small amounts on the same terms as professional investors.
I have another question for you. What prevents your investment from getting squished in future rounds?
I've been wanting to use a platform like this for a while, and that's one of my main concerns.
Also showing the % raised the way it is now is a bit misleading, it gives off the impression that that was the amount that went through the wefunder.
Try maybe different colours so we can see easily what has been raised via the platform.
1. I am gambling
2. They decide when to cash in. Usually it takes up to 10 years...
3. I would be a "bother" for the founders (true, but no nicer way of saying this?)
To me, and I am happy to waste HN points on this comment, this feels snarky and offending. They seem to say "we are the cool guys", come join us, maybe you ll be cool too, just gives us the money.
To celebrate, we are featuring great 25 startups from Y Combinator, Techstars, and MIT!
Clicking through to the "Raise Funding" page, which includes the pricing, this message appears at the bottom:
We offer a 100% discount to select high-tech startups that recieved funding from Y Combinator, SV Angel, or Andreessen Horowitz.
Not to dump on the accomplishments of the featured startups and those who have received funding from SV Angel or Andreessen Horowitz, but the message to everyone else seems to be: It doesn't matter how great your team is or how well you execute, if you are not part of the incubator/angel A-list, don't expect any breaks from us when it comes to promotions or pricing.
The biggest concern I think one should have about this is that dumb companies will be paired up with dumb money at a much greater rate than great companies being paired up with lucky (or smart) money, making the whole concept look bad.
In the UK we can do equity-crowd investments as small as £10 - as I did when I raised money on Seedrs: http://www.seedrs.com/startups/satago?promo_code=V5EKZUV4
Disclosure: That is a referral link - Seedrs give me 5% to invest myself if anyone invests an amount through that link, which I think is astonishing in itself and worthy of comment.
In the 1930's - pre-Internet - people were more easily scammed by traveling salesmen selling oil wells and such.
We have a lot more information at our fingertips these days.
I feel like we're just running the cycle on this one, someone should put up a countdown to the next Enron and these investments being made illegal again.
It would be very nice to see if the crowd has a different kind of investment trend from the accredited investors.
Edit: Mostly, I'm curious if there will be enough numbers to see a "wisdom of the crowd" effect or if it will actually just amplify whatever the big money tends to be attracted to.
That said, does anyone else think this will just feed into existing/new bubble?
Title III in particularly will bring in a flood of dumb money. What a beacon for #startupbros everywhere.