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Comment by npt4279 | Hacker News Reader

I can understand your viewpoint, and I'm usually pessimistic about human nature... But in this one thing, I'm an optimist.

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.

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There's still the possibility that companies will choose investment from larger investors, for the other values those investors provide.

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.

Yes but big dumb money on average is smarter than small dumb money. Also I'm guessing in aggregate there is a lot more small dumb money. I find this scary.

I don't have strong feelings one way or the other about the JOBS Act although I do think it will be interesting to see how everything develops.

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.

> 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.

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.

> 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.

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.

In order to attract the type of high-quality companies currently fundraising on Wefunder, we've were forced to figure out how to take away all of the downsides.

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.

So wefunder is actually a new type of fund? Maybe an "on-demand fund?"

Does this introduce counterparty risk in some way?

For instance, if Wefunder goes broke, do the investments go down with the company or are they all in a separate entity?

I agree that a company dependent on the JOBS act to raise money is less attractive, but that's only one of several profiles of folks who would take advantage of the JOBS act (that's a terrible sentence, forgive me).

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.

There's no limit to how much someone can spend on lotto tickets, slot machines, craps tables, options, etc. Why is startup investing any more dangerous?

Because people are being approached and told misleading crap by fly-by-night companies. At least they were, when the blue sky laws were enacted in the 30s.

The real regulation, imho, should be around truth in advertising and representation. There's not enough of that.

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