Capital available in $200,000 chunks would be an interesting world:
1) You'd presumably want to make the offering mass-customizable, like a typical residential mortgage. There are a few levers to play with, sure, by 98% of the contract got vetted by the company lawyers once as being Good Enough and folks can take it or they can leave it. This allows you to close deals quickly, avoid spending much time teaching buyers about your process, and have the deals offered by junior staff. Most home buyers want a house, they don't want a mortgage. Most startup founders have a business to have a business, not to raise capital.
(Note that this would make "comparison shopping" easy.)
2) Automate and outsource more of the process. Banks can profitably do loans for $200,000 houses because there is an infrastructure of people who can say "Yep, this is a $200k house" and FICO scores, which let you push a button and get a quick estimate of my propensity to default in a second. I know we all think we're beautiful snowflakes, but I'm willing to bet there is a function which can be evaluated cheaply that is unfair, misses all sorts of edge cases, has numerous theoretical problems, and nonetheless is Good Enough when only $200k is at stake.
3) As you reduce the amount of marginal effort in each deal, it becomes possible to scale it to the moon, in a manner similar to e.g. mortgages and mutual funds. (The fund has a lot of money, the individual investors have comparitively little money and reduced exposure to any single investment, etc.)
The big reason banks can say that about a house is that there is a house, which is a commodity (or at least, they were until recently), so if the deal does not work out the bank can sell the house.
Without collateral of some sort this will not work. And if you have collateral you could simply either sell that or mortgage that (and plenty of founders do).
I think without real collateral, banks should not get into this. It is very easy to file papers, slap up a web site and put some whiteboards up in cheap office, and have a "startup"; if you can get 200k a pop, vacuous startups will be manufactured at a great rate, very similar to how we manufactured $300k MacMansions for $100k a pop until that game blew up. The deposited money of ordinary citizens should not involved in something like you describe, and espeically not in collateralized startup obligations or insurance on the same or whatever else the dark-suited sociopaths will dream up.
However, a VC or hedge fund might get into it, as long the investors are millionaires who can afford the losses and presumably have or can buy the educated understanding of the risks.
On the other hand, if there were some sort of club or co-op I could join, that I could pay a small monthly fee, and that would then invest the aggregated fees in a new startup every couple of months, I might do that. Especially if I got to attend a monthly meeting, hear pitches from various people, network with other members and people in startups, and hopefully have an "in" should I ever apply for a job at one of the startups.
If you had an algorithm to define the solution set of future successful startups, then you could just hire employees to implement the ideas and make yourself filthy rich.
Comments
Capital available in $200,000 chunks would be an interesting world:
1) You'd presumably want to make the offering mass-customizable, like a typical residential mortgage. There are a few levers to play with, sure, by 98% of the contract got vetted by the company lawyers once as being Good Enough and folks can take it or they can leave it. This allows you to close deals quickly, avoid spending much time teaching buyers about your process, and have the deals offered by junior staff. Most home buyers want a house, they don't want a mortgage. Most startup founders have a business to have a business, not to raise capital.
(Note that this would make "comparison shopping" easy.)
2) Automate and outsource more of the process. Banks can profitably do loans for $200,000 houses because there is an infrastructure of people who can say "Yep, this is a $200k house" and FICO scores, which let you push a button and get a quick estimate of my propensity to default in a second. I know we all think we're beautiful snowflakes, but I'm willing to bet there is a function which can be evaluated cheaply that is unfair, misses all sorts of edge cases, has numerous theoretical problems, and nonetheless is Good Enough when only $200k is at stake.
3) As you reduce the amount of marginal effort in each deal, it becomes possible to scale it to the moon, in a manner similar to e.g. mortgages and mutual funds. (The fund has a lot of money, the individual investors have comparitively little money and reduced exposure to any single investment, etc.)
The big reason banks can say that about a house is that there is a house, which is a commodity (or at least, they were until recently), so if the deal does not work out the bank can sell the house.
Without collateral of some sort this will not work. And if you have collateral you could simply either sell that or mortgage that (and plenty of founders do).
I think without real collateral, banks should not get into this. It is very easy to file papers, slap up a web site and put some whiteboards up in cheap office, and have a "startup"; if you can get 200k a pop, vacuous startups will be manufactured at a great rate, very similar to how we manufactured $300k MacMansions for $100k a pop until that game blew up. The deposited money of ordinary citizens should not involved in something like you describe, and espeically not in collateralized startup obligations or insurance on the same or whatever else the dark-suited sociopaths will dream up.
However, a VC or hedge fund might get into it, as long the investors are millionaires who can afford the losses and presumably have or can buy the educated understanding of the risks.
On the other hand, if there were some sort of club or co-op I could join, that I could pay a small monthly fee, and that would then invest the aggregated fees in a new startup every couple of months, I might do that. Especially if I got to attend a monthly meeting, hear pitches from various people, network with other members and people in startups, and hopefully have an "in" should I ever apply for a job at one of the startups.
If you had an algorithm to define the solution set of future successful startups, then you could just hire employees to implement the ideas and make yourself filthy rich.
That's a truly fascinating take - making investment look more like home banking.