Ask HN: Pay Rent With Micro Equity?
19 comments
I like the idea and I would probably be interested if I was a cash-starved startup. However, I suspect the intersection between people with under utilized property assets (especially in SF!) and people who want to speculate in early stage startups is vanishingly small. How are you going to find these people?
Great question ;) I think that you might find "mentor" type folks who would be interested in helping spur local economies who might not normally be as incentivized to list a room on AirBNB for example. We have some relationships with some real estate publications who may partner to cover this if it's interesting. Or maybe someone has office space and they would be happy to sublet it to a complimentary start-up for equity and the benefit of having some new ideas in the building.
I don't think this makes economic sense. Equity in startups who don't have enough cash on hand to pay rent is likely to be more risky than equity in those who do.
Giving away equity for rent at an early stage doesn't make sense for founders either - making a mess of your cap table for office space is a poor decision when you could work from many other places for free, or remotely from home.
This sounds like a bad deal for both parties in the marketplace.
Giving away equity for rent at an early stage doesn't make sense for founders either - making a mess of your cap table for office space is a poor decision when you could work from many other places for free, or remotely from home.
This sounds like a bad deal for both parties in the marketplace.
Do you see any way you could structure the deal to make sense for both parties?
Also - the main idea for this was for residential space, we added the commercial cause, well, why not. But this was literally to give you a home to work out of.
Also - the main idea for this was for residential space, we added the commercial cause, well, why not. But this was literally to give you a home to work out of.
From my own recent experience, there is definitely demand from the side of founders for an AirBnB style deal specifically aimed at a place to live-and-work, especially for start-ups who need to relocate.
Take a look at listings like these:
https://www.airbnb.com/rooms/1337007
https://www.airbnb.com/rooms/133974
https://www.airbnb.com/rooms/264052
AirBnB doesn't accommodate them effectively because this is not their target market - AirBnB is mostly about holidays and residential space. Similarly, 42Floors doesn't do this at all because they are about Co-working and Commercial space.
I would suggest, forget the equity part of this completely. Start-ups are already bad customers without having to wait to recognise any revenue, and also have to go through regulatory implications. Let me rent a place with a sleeping area, a bathroom, a kitchen area and an office area for my whole team for a reasonable price.
It cost me a $4,000 deposit, $2,500/mo in rent and about $1,500 in IKEA/WalMart, and $3000 in temporary AirBnB accommodation to get my team situated in the bay area. Give me a better deal than that, especially one that saves me time.
Ship me groceries weekly, get me a rental car as part of this deal, and have it all ready as soon as I arrive and I wouldn't use any other service ever.
Additional features I would want:
- Connect me to the local hacker community - Tell me where I can get exercise and where I should shop
Take a look at listings like these:
https://www.airbnb.com/rooms/1337007
https://www.airbnb.com/rooms/133974
https://www.airbnb.com/rooms/264052
AirBnB doesn't accommodate them effectively because this is not their target market - AirBnB is mostly about holidays and residential space. Similarly, 42Floors doesn't do this at all because they are about Co-working and Commercial space.
I would suggest, forget the equity part of this completely. Start-ups are already bad customers without having to wait to recognise any revenue, and also have to go through regulatory implications. Let me rent a place with a sleeping area, a bathroom, a kitchen area and an office area for my whole team for a reasonable price.
It cost me a $4,000 deposit, $2,500/mo in rent and about $1,500 in IKEA/WalMart, and $3000 in temporary AirBnB accommodation to get my team situated in the bay area. Give me a better deal than that, especially one that saves me time.
Ship me groceries weekly, get me a rental car as part of this deal, and have it all ready as soon as I arrive and I wouldn't use any other service ever.
Additional features I would want:
- Connect me to the local hacker community - Tell me where I can get exercise and where I should shop
Isn't this basically what a relocation specialist does? Other than the startup focus, I've lived through pretty much this exact deal in several relocations with the oil industry (I spent my childhood bopping around the country courtesy of Big Oil).
- Temporary furnished corporate housing and vehicles - Expertise on the local area (shopping, restaurants, schools) - One signature for all of this, paid by the employer
Surely those firms could offer similar services for startups? That said, service providers in this area seriously pad their margins. You wouldn't believe what I've seen some apartment complexes bill a basic 1-bedroom unit out at as part of a corporate relo deal. $3000+ for suburban Houston. The family doesn't care, they aren't picking up the tab.
- Temporary furnished corporate housing and vehicles - Expertise on the local area (shopping, restaurants, schools) - One signature for all of this, paid by the employer
Surely those firms could offer similar services for startups? That said, service providers in this area seriously pad their margins. You wouldn't believe what I've seen some apartment complexes bill a basic 1-bedroom unit out at as part of a corporate relo deal. $3000+ for suburban Houston. The family doesn't care, they aren't picking up the tab.
Exactly. But those services are typically provided to entire families by BigCo - padded margins sound like this is a space where a cost-focused company could stand to make quite a bit of money.
This is really valuable - thanks for this.
I'm too young to have been there but I've read a bit about how during the first .com bubble landlords would routinely accept stock instead of rent. In fact, I believe an early cash-strapped PayPal did just that and the landlords went on to become pretty successful in their own right.
Relevant article about the landlords who also rented out to Logitech, Google, Danger, and Milo: http://www.nytimes.com/2007/09/14/technology/14landlord.html...
Relevant article about the landlords who also rented out to Logitech, Google, Danger, and Milo: http://www.nytimes.com/2007/09/14/technology/14landlord.html...
cool thanks for the resource.
This frequently happens in the Valley although almost always as a side effect of some kind of personal relationship with a landlord. As a two-sided market the trick would definitely be to get landlords on board.
Our thought was similar -- that this is already going on anyway. So this can just be a resource for folks to set up these deals.. Even if we don't monetize it, it could be a useful tool for folk, if we got the landlords on.
Thanks for doing this. We have a big spare room in our basement (in SF) that would be perfect for a 4-5 person startup, and I actually mused about just such an arrangement in the past, but I would probably have never actually done it on my own, out of some combination of laziness and fear that I'd get laughed out of the room for thinking anyone would give up equity so easily.
But based on the other comments in this thread, there are startups out there assuming nobody would give up the use of their space so easily. So it sounds like an idea whose time has come.
I'll be in touch.
But based on the other comments in this thread, there are startups out there assuming nobody would give up the use of their space so easily. So it sounds like an idea whose time has come.
I'll be in touch.
Thank you! we're excited to hear some validation.
As a company, my concern would be that having more owners is... pretty expensive. If I'm going to give someone equity in my company, I need enough equity to make it worth the complexity. Not only that, but there is a lot of trust involved, too. To the best of my knowledge, once you give someone equity, they have power over your company. They can fuck you up.
Whenever anyone offers to buy some equity, I consider how much time will it take me to manage the transaction, (and then how much time will it take to manage the other owner ongoing.) - then, "how many hours, working as a consultant, would it take me to earn that amount of money free and clear."
It's amazing how often I'd spend fewer hours consulting to earn, free and clear, the amount of money that a smallish 'angel' type wanted to invest. And then I wouldn't have another owner, long-term, to manage.
Of course, right now, the company is mostly me, with employees and family having a small amount. there's a very high cost to getting your first outside investor, so someone who already has outside investors would have a lower additional per-investor cost than I do, so I guess it could work for others.
Whenever anyone offers to buy some equity, I consider how much time will it take me to manage the transaction, (and then how much time will it take to manage the other owner ongoing.) - then, "how many hours, working as a consultant, would it take me to earn that amount of money free and clear."
It's amazing how often I'd spend fewer hours consulting to earn, free and clear, the amount of money that a smallish 'angel' type wanted to invest. And then I wouldn't have another owner, long-term, to manage.
Of course, right now, the company is mostly me, with employees and family having a small amount. there's a very high cost to getting your first outside investor, so someone who already has outside investors would have a lower additional per-investor cost than I do, so I guess it could work for others.
This is great: "It's amazing how often I'd spend fewer hours consulting to earn, free and clear, the amount of money that a smallish 'angel' type wanted to invest."
Thanks!
This will fail because... property owners just want the cash: they have mortgages to pay. They also are not experts at evaluating startups.
Do you think more people want to own startup equity? You should find a way for them to do this, perhaps make it easy to invest like a VC - kickstarter with equity.
Do you think more people want to own startup equity? You should find a way for them to do this, perhaps make it easy to invest like a VC - kickstarter with equity.
Thanks cjg!
do you think there might be a class of property owners who aren't that interested in renting (a room, cottage, etc) to a random person, but might be interested in helping a start-up?
Def like the idea of micro-equity crowdfunding. Surely with the jobs act people will be setting up these sorts of outfits (I think some already exist).
do you think there might be a class of property owners who aren't that interested in renting (a room, cottage, etc) to a random person, but might be interested in helping a start-up?
Def like the idea of micro-equity crowdfunding. Surely with the jobs act people will be setting up these sorts of outfits (I think some already exist).
Yes I think you are right. There are people who would be interested in renting probably relatively small spaces under certain conditions that are not full leases.
For example a spare room to a friend for a beer, or indeed, a basement to a startup they thought was cool. Because in these situations it isn't about the money.
The size of this market is probably fairly small and not very profitable - it isn't about the money.
Also I wonder how long people would be happy with this arrangement. After a few months they might start to think it would be nice to have the basement back or that someone who pays the rent would be nice.
For example a spare room to a friend for a beer, or indeed, a basement to a startup they thought was cool. Because in these situations it isn't about the money.
The size of this market is probably fairly small and not very profitable - it isn't about the money.
Also I wonder how long people would be happy with this arrangement. After a few months they might start to think it would be nice to have the basement back or that someone who pays the rent would be nice.
So, how exactly would your startup handle costs such as insurance if your entire revenue is all theoretical?
As a property owner, this is clearly a risky decision, that's why I think the future of BootRent would have some sort of startups valuation algorithm to give property owners some help in making that decision.
It seems like the valuation algorithm could be used more lucratively and directly in a more traditional VC way.
Yes, I think there might be some sort of "reputation" indicators, but it will prob need to be convertible debt.
"Reputation" indicators depends on trust by the asset owners. And when it comes to money handling, building a reputation takes a long long time. I'm just saying. I mean, think of it in this way, if I am your first deal, why would I want to believe in your reputation indicators? I don't even know your system. I'd recommend providing the asset owners with estimated revenues based on the average revenue of the sector in which the startup operates. A counsel by the VCs about why they funded the startup could also help a lot.
Right now we thought it would be valuable to simply help broker deals between property owners and start-ups. Similar to AirBNB, but you pay with equity instead.
I think you'll find that the universe of supply where the landlord wants to rent a space for equity AND the startup wants to rent that particular space AND both agree on an amount of equity is very, very small. So, your marketplace is going to have a very difficult time.
For some reason I am thinking this could unlock assets that aren't currently being used because the owner isn't as motivated by monthly rent. But might be more motivated by a more altruistic / help / mentor mentality of spurring economic growth in their home town. But you very well could be right. We'd like to test and see how small that universe is.
I certainly could be wrong. As you say, you won't know without trying.
The geography is going to play a big part, too. The average landlord in SF is going to understand startup economics much more than, say, in Texas or Michigan.
The geography is going to play a big part, too. The average landlord in SF is going to understand startup economics much more than, say, in Texas or Michigan.
I think most landlords would think the only startups worth such a risk would be ones that raised enough money to be able to pay rent.
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We're going to deploy the beta features to the site Sunday 23:59 UTC. Please excuse the bootstrap-ness, we don't have a designer on team (and if you're an interested designer, we'd love to talk to you, please get in touch [email protected])
Intellectual and physical property are 2 very different assets.
Property owners might be willing to take equity in tangible assets, since that's what they understand.
Move forward and test it out. We'll never know until someone tries! :)
Property owners might be willing to take equity in tangible assets, since that's what they understand.
Move forward and test it out. We'll never know until someone tries! :)
Thanks for the marching orders ;)
I would advise strongly against this. If you need an office or a desk, then you probably have some traction or revenue to sustain this without giving up equity. There is one thing VCs and Angel Investors hate is a messy cap table.
Curious how you might simplify this to not mess up the cap table.
I'd encourage you to take a look at history here.
There were a ton of landlords who took equity instead of rent in the first .com bust and for some Im sure it worked out well, for others probably not so much.
There were a ton of landlords who took equity instead of rent in the first .com bust and for some Im sure it worked out well, for others probably not so much.
I think on the commercial side this was pretty common. Might not work so well in SF now, but say, Detroit, etc.
And also - the residential aspect of this. Letting you find an apartment for 3-12 months while you build. We would certainly rent out a room in our house for equity to the right person -- would be in house inspiration and we wouldn't otherwise have a guest renter.
And also - the residential aspect of this. Letting you find an apartment for 3-12 months while you build. We would certainly rent out a room in our house for equity to the right person -- would be in house inspiration and we wouldn't otherwise have a guest renter.
This problem of valuation is only there if you don't do it as convertible debt. We'd love to do something like this at http://AllTheRooms.com.
Beautiful site! We'd love to talk to you about it. And our thoughts exactly re: the convertible debt piece.
I believe you will have the following challenges
1 - Educate individuals/agents/agencies.
2 - Could you move beyond Bay area , NY ? Detroit, Texas. Scalable model ?
No reason we can't let anyone use the platform. And since our #1 goal is just to help people out, we don't need massive adoption as long as the right people know about it and use it. Bonus points if we can cover operational costs, but we have other projects we are building as well. We could take a % of the equity as well, perhaps or have a listing fee.
being the broker in the deal between the asset owner and startup folks, you will need to convince the asset owner about the worthiness of the startup. Have you thought of the metrics that could be used to help the asset owner understand the startup's value? Most asset owners do not know beyond GMail, Yahoo Mail and, perhaps, Facebook and Twitter. So how will they ever understand about values of startups like, for example, Cloudability or AdCash?
Right on! owners will understand a recommendation scale (on a scale from 1 to 10), we can use every possible metric internally and save them the headache. If we can gain their trust, that number might be everything they need.
1. some will (blindly) trust your scaling system out of trust
2. some will want to know how you arrive at a value in your scaling system (the whole process, which might kill their mood)
I reckon you will have to go through type 2 people before acquiring type 1 people. I just came across materials that explain the Islamic Banking system; where the risk of financing an asset is shared by the bank and the purchaser of the asset. How about bringing a micro-financing institution in the middle (perhaps one that follows this Islamic Banking system) who will pay the asset owner while betting on the startup; all the while sharing the risk with both the parties (asset owner and startup)?
I reckon you will have to go through type 2 people before acquiring type 1 people. I just came across materials that explain the Islamic Banking system; where the risk of financing an asset is shared by the bank and the purchaser of the asset. How about bringing a micro-financing institution in the middle (perhaps one that follows this Islamic Banking system) who will pay the asset owner while betting on the startup; all the while sharing the risk with both the parties (asset owner and startup)?
Maybe it's some sort of convertible note system based on the monthly value of the building? So, $1k / month for a year is the equiv of a $12k convertible note? Ideas?
convertible note sounds like a possible option... but what if the asset owner needs to cash-it-in before the maturity date. Say the asset owner has to pay some bills after 6 months but this convertible note might not be encashable until the 12 month period is over, which is it's maturity period. At this juncture both parties are in trouble. Perhaps, the asset owner will vacate the startup for cash from new tenants next month.
This will be a complex financial model. I'll see if I can come up with some stable form of transaction agreeable by both sides. If you require any assistance on this, drop me a line at subhankar.sett which is in gmail. I'll try my best.
This will be a complex financial model. I'll see if I can come up with some stable form of transaction agreeable by both sides. If you require any assistance on this, drop me a line at subhankar.sett which is in gmail. I'll try my best.
Thanks, will shoot you an email!
This is a really cool idea.
My startup, Texts.com, was actually endorsed by Jimmy "The Rent is Too Damn High" McMillan just a month or two ago. This picture got ~5,000 "likes" and 250 shares on FB; though I'm "saving" the true juice of the endorsement for peak book-buying season: http://on.fb.me/1i52qUm
Getting in touch with Jimmy initially proved somewhat difficult, so feel free to e-mail me (peter -at- texts.com) to talk if you'd like. Good luck - again, seems like a great idea.
My startup, Texts.com, was actually endorsed by Jimmy "The Rent is Too Damn High" McMillan just a month or two ago. This picture got ~5,000 "likes" and 250 shares on FB; though I'm "saving" the true juice of the endorsement for peak book-buying season: http://on.fb.me/1i52qUm
Getting in touch with Jimmy initially proved somewhat difficult, so feel free to e-mail me (peter -at- texts.com) to talk if you'd like. Good luck - again, seems like a great idea.
HA! Amazing. Will shoot you an email. Thanks!
I imagine you will have a hard time convincing people to give up collecting cash from rent for theoretical equity.
True, but what if you're not able to collect decent cash for the property? (maybe this is not a SF/NY market)
Find a place to live or work and give a small slice of early stage equity (for now with a simple contract that is similar to a convertible note type set up -- still working on the legal aspect).
What do you think?
1) Would you use this as a start-up? Why / why not?
2) If you have a spare room, office space, etc. would you be excited about supporting a start-up?
3) Why will this fail?
4) Why else will this fail?
5) What should we add? What else should we do?
Also, we'd love beta users and feedback. The beta will be live on http://BootRent.com
PS -- we've reached out to "The Rent Is Too Damn High" Party founder and NYC Mayor Candidate Jimmy McMillan about being our spokes person, but are still awaiting a reply ;) (seriously)
http://bootrent.com