I'm curious as to how people think Ycombinator would benefit from such a move. To me, it looks like a distraction at best and has a huge potential for the appearance of conflicts of interest.
I will speculate that crowd source funding is more likely to generate headlines for dissatisfied investors from the middle class than for successful ones. The economics of startup investing require a sufficient pool of capital to:
1. Have access to quality opportunities.
2. Sufficiently capitalize each opportunity.
3. Invest in a large number of opportunities so as to increase the odds of hitting a homerun.
Few people have that much money. And crowdsourcing will attract both people with little inhibition toward spending other people's money and investors without the knowledge or resources or inclination to conduct due diligence.
To put it another way, real investors have a track record already. They don't need crowdsourcing.
But real investors also need capital, or it helps to have more capital. Crowd funding is a way to lower your risk. The big investor organizes the venture and finds opportunities. They put less money in but still get the same payout. The tiny investor gets less of a return on their money, but gets an opportunity to invest at a stage they are normally shut out of. They're paying for the opportunity essentially.
A large number of naive investors as partners increases the risk of an investment.
It's the reason that professional investors tend to put together deals with other investors they have previously worked with. It's the reason they form groups.
As I've said, crowdsourcing will attract dumb money. Smart money will tend to prefer not to become legally entangled with it. People with lower inhibitions will enjoy a feeding frenzy.
Don't misunderstand me. There will be widely trumpeted crowd source success stories.
It just won't change the fact that most people will lose their investments - heck that's even the rule for smart money investing in startups.
The only potential reason I can see is that crowdfunding also builds an audience with a stake in seeing your company turn out successfully, but it's hard to imagine how that would be useful in the case of a YC backed company.
Comments
I'm curious as to how people think Ycombinator would benefit from such a move. To me, it looks like a distraction at best and has a huge potential for the appearance of conflicts of interest.
I will speculate that crowd source funding is more likely to generate headlines for dissatisfied investors from the middle class than for successful ones. The economics of startup investing require a sufficient pool of capital to:
1. Have access to quality opportunities. 2. Sufficiently capitalize each opportunity. 3. Invest in a large number of opportunities so as to increase the odds of hitting a homerun.
Few people have that much money. And crowdsourcing will attract both people with little inhibition toward spending other people's money and investors without the knowledge or resources or inclination to conduct due diligence.
To put it another way, real investors have a track record already. They don't need crowdsourcing.
But real investors also need capital, or it helps to have more capital. Crowd funding is a way to lower your risk. The big investor organizes the venture and finds opportunities. They put less money in but still get the same payout. The tiny investor gets less of a return on their money, but gets an opportunity to invest at a stage they are normally shut out of. They're paying for the opportunity essentially.
>"Crowd funding is a way to lower your risk."
A large number of naive investors as partners increases the risk of an investment.
It's the reason that professional investors tend to put together deals with other investors they have previously worked with. It's the reason they form groups.
As I've said, crowdsourcing will attract dumb money. Smart money will tend to prefer not to become legally entangled with it. People with lower inhibitions will enjoy a feeding frenzy.
Don't misunderstand me. There will be widely trumpeted crowd source success stories.
It just won't change the fact that most people will lose their investments - heck that's even the rule for smart money investing in startups.
The only potential reason I can see is that crowdfunding also builds an audience with a stake in seeing your company turn out successfully, but it's hard to imagine how that would be useful in the case of a YC backed company.