Crowdfunding a startup feels really "gimmicky" for YC -- just because someone raises a lot of money doesn't mean the product is great -- I believe there was a very bad RPGMaker game recently that received $20k worth of funding with barely anything done and stolen assets.
I'd like to think that VC's and the judges at YC have quite a lot of experience knowing who to pick, what characteristics to focus on, among other things. I also think money is one of the least important factors into joining YC, as what's more important is the mentoring, along with the network you become a part of. Finally, PG and the other mentors have put their name behind YC, but when you start to allow in companies that win popularity contests, you diminish the brand.
I do like the idea, and it's why I've helped people build websites that can do this (although I need to wait for the JOBS act to finish its evaluation by the SEC), and I've also signed up for Wefunder, a site dedicated for stuff like this. I just don't think this is a good fit for an incubator with the prestige of YCombinator.
The important part is not the money, its the opportunity for people like me to invest in growing companies. The money is just the way the risk is transferred.
Obviously, I would want the crowd sourced company to be a part of YC. The mentoring and the contacts are what make their companies successful.
But all that work takes energy and costs money, so we (the HN community) has to assume the risk. PG could structure it so that YC gets a stake in the company we fund. YC puts in the energy and the mentoring, and in exchange gets a stake. We put in the money and assume most of the risk.
Its a low-risk way to fund another applicant. I say low risk because there still are risks, namely that having more investors spells trouble and there are legal costs associated with us. But that's not a hurdle, merely part of the equation into how the profit would be distributed.
Yes however it could be for YC companies only, so you know you're less likely to get a dud. However I'm not sure how it would workout and it could get messy fast. I see a lot of potential pitfalls in crowd funding startups, there will be bugs at first.
I'd love the opportunity to invest pro rata with angel groups, TechStars, Y Combinator, and many VCs. The "gimmick" factor would depend largely on the structure and presentation of the opportunity.
As it stands, it's exceptionally hard to buy the startup market. The closest thing we have to an Index fund is Ron Conway, and he's not selling shares of himself. This is a huge missed opportunity.
HNWIs and institutions have varied and limited access to deals, and are constrained in the number of investments they can make. This exacerbates the problem that early-stage angel investing has sickening variance unless you're able to build a sizable portfolio.
The general public can't get in on these deals at all.
Because of this, I'd love to see top investors accept, as a limited partner, a crowd-sourced, retail-accessible "Fund of Funds" that operated on something akin to the Vanguard business model, charging a fairly minimal fee to buy the startup market. If that existed, I'd joyfully invest in it.
edit: this would also provide an interesting benefit the startups, particularly if they're consumer-facing, as it would dramatically increase the number of people who have a reason to care about them, their product and their continued success.
YC, good VCs, etc, aren't capital constrained, and do a ton of work to get their dealflow. So wishing that you could invest pro-rata alongside them with no fees is like wishing that ice cream were free :)
My apologies for being unclear. Pro-rata would apply primarily to angel groups that simply wanted to increase their attractiveness to entrepreneurs, by getting the ability to (very easily) multiply their financial firepower.
For VCs, I'm suggesting investing as an LP, and paying management and performance fees.
As it stands, the asset class is completely inaccessible to most retail investors. Even for HNWIs and institutions, it's difficult to build a reasonably diversified portfolio.
I feel as though with some work, the model could provide value to all participants.
- Startups get a broader range of individuals who care about their success
- Angel Groups effectively get more power.
- VCs get an LP whose whole business is structured around new venture investment, so sales and management would likely be simpler than with LPs that might be more fickle depending on who's running finance and treasury, and what else has happened to their endowment in the past twelve months.
- Retail investors and institutions get to buy a portion of the market that's currently inaccessible, which should provide a better overall allocation of funds.
Comments
Crowdfunding a startup feels really "gimmicky" for YC -- just because someone raises a lot of money doesn't mean the product is great -- I believe there was a very bad RPGMaker game recently that received $20k worth of funding with barely anything done and stolen assets.
I'd like to think that VC's and the judges at YC have quite a lot of experience knowing who to pick, what characteristics to focus on, among other things. I also think money is one of the least important factors into joining YC, as what's more important is the mentoring, along with the network you become a part of. Finally, PG and the other mentors have put their name behind YC, but when you start to allow in companies that win popularity contests, you diminish the brand.
I do like the idea, and it's why I've helped people build websites that can do this (although I need to wait for the JOBS act to finish its evaluation by the SEC), and I've also signed up for Wefunder, a site dedicated for stuff like this. I just don't think this is a good fit for an incubator with the prestige of YCombinator.
The important part is not the money, its the opportunity for people like me to invest in growing companies. The money is just the way the risk is transferred.
Obviously, I would want the crowd sourced company to be a part of YC. The mentoring and the contacts are what make their companies successful.
But all that work takes energy and costs money, so we (the HN community) has to assume the risk. PG could structure it so that YC gets a stake in the company we fund. YC puts in the energy and the mentoring, and in exchange gets a stake. We put in the money and assume most of the risk.
Its a low-risk way to fund another applicant. I say low risk because there still are risks, namely that having more investors spells trouble and there are legal costs associated with us. But that's not a hurdle, merely part of the equation into how the profit would be distributed.
I would assume that YC's resources are more limited at the energy level than the money level.
Yes however it could be for YC companies only, so you know you're less likely to get a dud. However I'm not sure how it would workout and it could get messy fast. I see a lot of potential pitfalls in crowd funding startups, there will be bugs at first.
I'd love the opportunity to invest pro rata with angel groups, TechStars, Y Combinator, and many VCs. The "gimmick" factor would depend largely on the structure and presentation of the opportunity.
As it stands, it's exceptionally hard to buy the startup market. The closest thing we have to an Index fund is Ron Conway, and he's not selling shares of himself. This is a huge missed opportunity.
HNWIs and institutions have varied and limited access to deals, and are constrained in the number of investments they can make. This exacerbates the problem that early-stage angel investing has sickening variance unless you're able to build a sizable portfolio.
The general public can't get in on these deals at all.
Because of this, I'd love to see top investors accept, as a limited partner, a crowd-sourced, retail-accessible "Fund of Funds" that operated on something akin to the Vanguard business model, charging a fairly minimal fee to buy the startup market. If that existed, I'd joyfully invest in it.
edit: this would also provide an interesting benefit the startups, particularly if they're consumer-facing, as it would dramatically increase the number of people who have a reason to care about them, their product and their continued success.
YC, good VCs, etc, aren't capital constrained, and do a ton of work to get their dealflow. So wishing that you could invest pro-rata alongside them with no fees is like wishing that ice cream were free :)
My apologies for being unclear. Pro-rata would apply primarily to angel groups that simply wanted to increase their attractiveness to entrepreneurs, by getting the ability to (very easily) multiply their financial firepower.
For VCs, I'm suggesting investing as an LP, and paying management and performance fees.
As it stands, the asset class is completely inaccessible to most retail investors. Even for HNWIs and institutions, it's difficult to build a reasonably diversified portfolio.
I feel as though with some work, the model could provide value to all participants.
- Startups get a broader range of individuals who care about their success
- Angel Groups effectively get more power.
- VCs get an LP whose whole business is structured around new venture investment, so sales and management would likely be simpler than with LPs that might be more fickle depending on who's running finance and treasury, and what else has happened to their endowment in the past twelve months.
- Retail investors and institutions get to buy a portion of the market that's currently inaccessible, which should provide a better overall allocation of funds.