Any way to invest $100/200 in startups ?
8 comments
Short answer, no. The fundamental reason goes back to 1933/1934 when the modern rules of public offerings were enacted. To avoid investors being fleeced by unscrupulous business owners that falsely advertised the merits of their businesses, stringent rules were put in place for any offering of stock to the public. These rules continue to govern the behavior of publicly traded companies today. As a result of these regulations, stocks cannot be offered to a mass audience without those offering falling under the regulation of the SEC. Exceptions are made for small numbers (<99) of Accredited Investors ($250K annual income or > $1M liquid net worth, or something close to that), and others close to the company.
In short, a company cannot offer its stock broadly to the public without complying with the fairly onerous SEC provisions regulating public companies.
But why can't you create a business that is an accredited investor, which invests in companies based on its LP's choices?
In other words: Let's say I want to invest $100 in SmallCompany.com, for the equivalent 100 shares. I make that bid, and if SmallCompany accepts the bid, then I give Me-VC.com (the accredited VC company) $100 and Me-VC would make an equivalent investment in SmallCompany of that amount, for that number of shares. If SmallCompany exits, I get a return commensurate with the number of shares Me-VC invested for me.
Edit: I developed a site to back this but I've been searching for someone to co-found on the business/legal side, which in this case, is by far the tougher role.
In other words: Let's say I want to invest $100 in SmallCompany.com, for the equivalent 100 shares. I make that bid, and if SmallCompany accepts the bid, then I give Me-VC.com (the accredited VC company) $100 and Me-VC would make an equivalent investment in SmallCompany of that amount, for that number of shares. If SmallCompany exits, I get a return commensurate with the number of shares Me-VC invested for me.
Edit: I developed a site to back this but I've been searching for someone to co-found on the business/legal side, which in this case, is by far the tougher role.
For what it's worth, there are many mutual fund -> hedge fund relationships similar to what you have described. Average investors can't invest directly in a hedge fund, but they can buy into a mutual fund which has major holdings in one (or several). It's not the one-to-one relationship you described though.
In your example, you would need to be an accredited investor to invest in Me-VC.
In the U.S. But then this will happen outside of the US.
It makes me mad that in a country that has nearly zero financial regulations from fleecing the poor, there are regulations from keeping the poor from investing in seed stage ventures. The rich can invest in Twitter and the poor are stuck with the lottery (i.e. mathematically constrained odds of 'impossible'). Fuck the rich.
It makes me mad that in a country that has nearly zero financial regulations from fleecing the poor, there are regulations from keeping the poor from investing in seed stage ventures. The rich can invest in Twitter and the poor are stuck with the lottery (i.e. mathematically constrained odds of 'impossible'). Fuck the rich.
That's a very American centric way of looking at it, the world is a lot larger and there are plenty of ways this could be done by incorporating abroad.
The SEC regulates the American markets, but worldwide you've got plenty of options. One way would be to incorporate in Panama, Curacao or Cyprus, where there are not such limitations.
In fact, the whole 'accredited investor' concept is as far as I know limited to the US.
The SEC regulates the American markets, but worldwide you've got plenty of options. One way would be to incorporate in Panama, Curacao or Cyprus, where there are not such limitations.
In fact, the whole 'accredited investor' concept is as far as I know limited to the US.
There was a company called Sprowtt at 2009's TC 50 that wants to do this.
They don't seem to be up and running though: http://www.techcrunch50.com/2009/sprowtt-marketplace/
They don't seem to be up and running though: http://www.techcrunch50.com/2009/sprowtt-marketplace/
Sure, send a couple hundred bucks to the folks who hack on the open source software you use the most -- maybe add a request for an enhancement that would do you good, so you can be sure to get a return on your investment.
There are microlending sites like kiva.org.
However, if you're talking about investing in terms of buying stock in a typical technology startup sort of scenario, I doubt it. The legal hurdles are one thing, the other is that for each investor a company brings in, there are about $500-$1000 in related overhead costs. Just dealing with the legalities and the requirements for things like sending copies of the board meeting minutes to the investors make $200 investments a losing proposition.
However, if you're talking about investing in terms of buying stock in a typical technology startup sort of scenario, I doubt it. The legal hurdles are one thing, the other is that for each investor a company brings in, there are about $500-$1000 in related overhead costs. Just dealing with the legalities and the requirements for things like sending copies of the board meeting minutes to the investors make $200 investments a losing proposition.
You might be able to do this on http://www.secondmarket.com depending on how established the startup is.
The site lets you trade all kinds of illiquid assets, including private company stock.
The site lets you trade all kinds of illiquid assets, including private company stock.
I had this idea a while back and wanted to create just that... so I bought http://ifundedthat.com
I'll sell it to whomever feels like taking a stab at it :-)
I'll sell it to whomever feels like taking a stab at it :-)
What about startups outside US? Two programmers in México could eat (mostly tacos) a whole month for $200.
Maybe regulations for investing in latinamerican startups are looser?
Maybe regulations for investing in latinamerican startups are looser?
No. But your question is good.
Do you know any website where small investors (around $200) can invest legally into a startup ?