This is really cute. As a self-diagnosed crazy bird person, I appreciate seeing educational resources like this for folks interested in being bird owners.
We do investment crowdfunding. We’re a Public Benefit Corporation (and certified B-Corp) with a mission of helping entrepreneurs and making capitalism work better for local communities.
To date, we’ve helped startups and small businesses raise $70M from our community of $180k people. Currently, we have 16 people full-time and have raised $7.2M using our own product. The engineering team is small but effective: we’re currently two MIT grads.
You’d be helping us build new products (e.g. community tools for founders/investors) and make what we already have work better. You’d have a large impact on our product, wear multiple hats, and help us shape our engineering team. This role has both an individual contributor and management growth path.
I disagree with the premise that the asset class as a whole is bad.
At the seed stage you're looking at returns of 50-5000x if you "win" so there's more margin of error in the 1/10 statistic.
To be clear: I think investing $5k in one startup (and only one startup) is dumb. I'm not saying that's what people should do. And there are legal limits to how much people can invest and requirements for platforms to educate (and ensure investors understand basic risks like failure rates and need for diversification). When you invest $5k across 50 startups that starts behaving like an index fund.
The caveat to the "big win" returns is that it's traditionally hard to get access to the companies that have a real chance at IPO. A small group of people with privileged access make an obscene amount of money and it's hard to break into that insider club due to structural issues with non-JOBS Act regulations.
The health of the asset class, IMO, is dependent on platforms' ability to attract those companies. For equity crowdfunding (when restricted to rich people) it's clearly in the realm of plausibility. The three major platforms all have at least one "Unicorn" under their belt. For unaccredited crowdfunding I'm optimistic given the information I've seen that this is doable, but if I'm wrong it'll be because the new regulations scare away the "good" companies. Not because retail investors are dumb or there's an inherit issue with democratizing access. There will be a law or amendment in the future that fixes any regulatory issue. I'm pretty certain this or something like it is the future if you look forward far enough.
The JOBS Act _does_ cap the amount people can invest per year. It's 5% of your income or net worth across all platforms (whichever is greater). If you make more than $100k the limits are higher and more complex to compute.
Platforms are also required by law to have educational material. And, annoyingly, investors have to fill out a small questionnaire about the risks of investing every single time they invest. So if you invest $100 in 10 companies you'll have to fill out a thing saying you know you could lose all your money and you should be diversifying, 10 times.
Plus, it's in our own economic interest to make it clear how and why diversification is important and that investors make smart decisions. Our whole business model depends on investors making a return since we charge carried interest (i.e. a percent of profits that investors make). This is standard practice for accredited crowdfunding and I expect it to carry over to the unaccredited world.
> [...] you're missing an important fact: wealthy individuals have access to resources, like attorneys, accountants and financial advisers
This is less of a concern when non-accredited investors are investing alongside accredited investors under the same terms. I also think it's the duty of a platform to make sure unaccredited investors don't get unfair treatment.
> First, most Americans are currently not investing in the public markets[1], many because they don't have the money to.
True, but I'm not advocating that every American should invest in super-risky companies. Plenty of Americans (actually, folks from all over the world) definitely want to invest small amounts of money in companies they believe in and want to support. They try, but can't. If the investor limits magically went away tomorrow we'd see an order magnitude more money invested in startups on our platform.
Even though startup investing may not be right for everyone doesn't mean that most people should be legally prohibited from doing it. There are plenty of products I use in my life (personally and for business) that I would love to invest $100 in. I understand the risks, what's inherently wrong with me investing with 10k other people? There's a lot of potential issues with the _implementation_ of a platform (e.g. do investors get enough information? is there adverse selection?), but I don't think there's _inherent_ issue with all possible implementations.
> Second, there are plenty of publicly-traded vehicles that provide access to private market investments.
I didn't realize CSV Capital was publicly traded, that's great - thanks for pointing it out! Maybe I'll buy some shares.
> Are you referring to 506(c)?
No, I meant 506(b) earlier in 2013. The argument was that only companies desperate for money would resort to listing on a crowdfunding platform.
506(c) has a few problems that makes it a pretty weak and ineffective regulation. There isn't much upside in generally soliciting to accredited investors only to counteract the legal uncertainty with the way accredited verification was implemented.
(Disclosure: I'm a founder of an equity crowdfunding platform so I financially benefit if people use this legislation.)
I don't think startup investing is for everyone, for some of the reasons you mention below. And I agree there's a risk of the ecosystem developing poorly to be a "market for suckers". But I think the JOBS Act is a net good thing and the concerns you highlight are addressable.
The main problem I have with the "old rules" of investing is that wealth is used as a proxy for sophistication. If you happen to have a PhD in Machine Learning, for instance, you're unable to invest even $100 in AI companies unless you're literally a millionaire. With companies staying private longer, most of the growth in high growth startups is only available to the wealthy.
From the data we've seen so far from unaccredited investors trying to invest in startups (but failing the financial requirements) we haven't seen any correlation in financial status and savviness. Unaccredited investors try to invest in the same companies as the accredited investors, and they all avoid the weaker startups. So I'm optimistic about that, at least for the early adopter crowd. And I think as the ecosystem matures fundraising platforms will look less like Kickstarter campaigns and be more optimized for groups of people assessing/vetting startups. (But I'm an optimist and obviously biased.)
The biggest problem with the JOBS Act is the potential for adverse selection. If "the best" startups don't want to touch it with a 10-foot pole for legal reasons, that's a serious issue for the ecosystem. We've been spending a bajillion dollars on legal research and think we have something that makes this nearly a no-brainer for startups, but time will tell. Startup lawyers hate being guinea pigs with new regulations.
At best I think we'll see a lag in mainstream startups using Title III. Instead we'll see small businesses that are underserved by current investors first. With more precedent and familiarity with unaccredited crowdfunding I'm pretty sure we'll see more startups use it. A similar thing happened three years ago with "rich person" crowdfunding – many critics speculated only bad companies would use it, not-bad companies started using it, and now it's generally accepted.
Index funds would be great. The JOBS Act prohibits investment funds explicitly and it's prohibitively expensive to create a fund for early stage startups that unaccredited investors can participate in. However we're working on ways to emulate index funds, and I think it'll be doable by someone in the long-run.
+1. That's one of the things we hope to accomplish at Wefunder. The gap between public markets and private markets in terms of wealth creation and deal access is really big.
That certainly was part of the dotcom bubble, but not the cause of it. In addition to a very frothy public market there was an obscene amount of private money getting invested in companies with poor fundamentals. sama wrote a great article recently about bubbles.
There are a few things from the JOBS Act that protects against terrible things. People can't invest more than a certain amount in startups overall - your quota is based on your income or net worth and is either 5% or 10%, depending.
Additionally, these are long term investments - you can't easily flip investments and I think that'll play a big part in people's psychology. You can't buy a share of some hip photo startup (for example) and sell it to someone else in 6 months at a higher price. In many cases you're going to be holding your investments until the company exists. There are exceptions to this, but I think practically we won't see secondary markets for a long time.
Another thing (this is more specific to Title III - the crowdfunding part of the JOBS Act that we're still waiting on) is that companies have to publicly set a goal and meet it through a registered platform. So a shaky startup can't find 10 suckers to give them $1000, they have to set a real goal (e.g. $50k) and convince a crowd of people to give them money. It still will happen, but I think fraud will be much less common than well intentioned startup failure.
The best part (IMO) is that the economics of investing will be dramatically different, so people can invest $100. Startups are super risky, but with $5,000 you can invest in 50 businesses and spread the risk. Because they're startups many will fail, but it's less likely to get conned by 50 founders.
It's going to be closer to filing a Form S-1 (like with an IPO) than submitting a url and such, unfortunately. And it's probably going to cost tens of thousands of dollars in lawyer/accountant time before you can even start with Reg A+.
Users having ownership in a company can be a powerful thing, and I think we're going to see it more and more. Hopefully with the new SEC regulations companies like Reddit will be able to legally do what should be easy (gift people equity).
The upside is that the SEC reported to congress that they're going to get Title III (the part of the JOBS Act meant for startups and small businesses) implemented by October this year. I think that's going to be a much better fit for what you're looking for.
Reg A+ (what was just voted on) is probably not going to be a good fit for you, since you're required to get approval from the SEC and need to periodically file audited financial statements. But the other part of the JOBS Act (commonly referred to as Title III) should be here by the end of the year. You should check out Wefunder (disclaimer: my startup), we'll be supporting the JOBS Act.
It's great that the SEC is moving forward with implementing the JOBS Act, but sadly what the SEC voted on isn't a good fit for startups and small businesses. It's more of an "IPO-lite" and for the most part only makes sense for companies that are a year or two away from going IPO.
On the upside, the "good stuff" from the JOBS Act (Title III) should be implemented by the end of the year.
If quantum-entangled particles exist (they do) you can use them to coordinate in a way that's impossible within a "hidden variable" model of the universe. You can dig into this by searching for "bell's inequality" or "bell test experiments", there are a few different experiments that have been done many, many times. There's a pretty good Veritasium video that explains one such experiment in non-physicist terms: https://www.youtube.com/watch?v=ZuvK-od647c
To give you an embarrassing personal anecdote: In my first startup I wanted to do customer development. The lean startup was a fresh and growingly popular idea, and we devoted more time and energy talking to potential customers than turning our proof-of-concept prototype into an MVP. It looked smart on paper. Unfortunately that didn't go so well and my conclusion was that we were doing customer development wrong. So we tried to do customer development "better" instead of pivot.
I was so mentally set in my idea that I consistently gravitated to the next-simplest explanation when I encountered sad evidence. And even though I believed I was being smart and understood customer development, I was following a checklist of things I thought I was supposed to do and was confused when we stagnated. I pretty much was asking to learn my lesson the hard way. :)
It seems very plausible that new products and services can be built to help founders be more effective at customer development. However one major obstacle if you outsource customer development too much will be dodging bullets as the messenger.
If I had used a CD service I'd probably assume the person was doing it wrong. They don't get my product, they are bad at sales, they aren't finding the right customers, etc. And then I'd wonder why I was throwing away my money (out of my personal pocket) for a service that wasn't "working". Unless you're a customer development superhero there might even be a little truth in all those things – it's going to take you a while to orient to the company's vision and market.
Another issue is that you'll probably see adverse selection from your clients. Folks who are good at customer development or stumble into promising early traction probably aren't going to hire a consultant for that stuff. So you're going to get people who either have an aversion to talking to customers and/or have hit a wall finding customers. And it's quite possible that the stuff you'll try is very similar to the stuff they tried and failed. So most of your clients might be biased towards failed startups, which may create a lot of churn and make it harder to gain inbound leads.