
Crowd Investing: Wefunder - ysilver
http://wefunder.com/
======
dclaysmith
I think the need to stop SOPA and the need to legalize this funding model are
apples and oranges. I would love to see some changes to funding laws but many
of these laws exist to prevent the defrauding of smaller, less "sophisticated"
investors. Simply making the investment legal wouldn't do much without
modifying the disclosure requirements the start-up faces. These disclosures
will remain very important to prevent scams.

So, great idea but not simple. And not a "cause" like fighting SOPA was...

~~~
zapnap
Agree that it's largely apples and oranges. I think the poster was more
calling attention to the fact that SOPA showed a lot of people that their
voices do matter, and can affect change in government. So in that way, at
least, they're related.

Fraud is certainly a concern, and the reason that the laws were introduced in
the 1930s in the first place. But the S.1791 bill has provisions for dealing
with this through (relatively) strict individual investing limits and
reputation via crowdfunding intermediaries. A balance needs to be struck
between protecting "less sophisticated" investors and giving those of us who
want the opportunity the chance to get involved, help support entrepreneurs,
and create jobs (on main street and in silicon valley). There's still a lot to
be hashed out of course, but this would be a step in the right direction.

Disclaimer: I'm one of the people who worked to put the petition together.

~~~
chernevik
Fraud is _the_ concern. It isn't hard to imagine a crowdfunding bucket shop
flacking shell companies to clueless investors who think they're buying a
piece of the future. You can't fit much due diligence expense into a $2mm
funding round.

I'd also worry about crappy documentation / followthrough. What's to stop
management teams from using such ventures to roadtest ideas and architecture
and fit, "fail", then launch for real without the crowdfunders?

Nor need we go even that far. What about cronyisms in investment
recommendation, management hiring, consultant hiring?

You or I might be able to assess the network reputation of various players and
intermediaries. But there are a ton of investors who can't spell 'DNS' and
lack the self-knowledge to know they can't.

I'm as anti-regulatory as anyone I've seen on this forum, but this to me looks
like trouble. I'm sure you mean well, it _sounds_ like a good idea. But if you
imagine the broader universe of potential funders and funded, you may begin to
see the problems.

~~~
lukifer
How is it that Kickstarter has managed to stay mostly free of fraud? What's to
stop someone from raising $50k with a slick video and then disappearing?

Crowd funding is a good idea, but Kickstarter has the generally right
approach: small amounts, framed as donations rather than investments, and
reward(s) rather than an ownership stake.

~~~
chernevik
I don't know anything about Kickstarter. But:

has ks been around long enough to attract / surface fraud?

incentives for fraud go up at stakes of 1 - 2mm

public investment models anticipate social disconnection bw funder and funder
-- if ks depends on verification through social network linkage, that's an
element potentially missing from the proposal. again, not for _you_, for the
sort of people targetted by predators

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zeratul
We are getting the news too late. Did you know that there are 7 bills that
might change how startups operate?

    
    
        H.R.3427 - Startup Technical Assistance for Reemployment 
                  Training and Unemployment Prevention Act
        H.R.3571 - Entrepreneur Startup Growth Act of 2011
        S.1965 - Startup Act of 2011
        S.1826 - Startup Technical Assistance for Reemployment 
                 Training and Unemployment Prevention Act
        H.R.2941 - Startup Expansion and Investment Act
        H.R.1114 - StartUp Visa Act of 2011
        S.565 - StartUp Visa Act of 2011
    

We need a web service that is more robust than <http://www.opencongress.org/>
. We need a web service that has proper data mining, visualization, and
notification system. The big guys have their lawyers - we need a proper web
service. Who can help to build that?

~~~
davidcuddeback
Well, there's already <https://www.popvox.com/>. They show bills currently in
Congress, organized by category or what's most popular on the site. They also
send alerts that recommend bills based on your interests, although it seems to
be in the alpha stage right now.

I'm not sure if Popvox has all the features you have in mind. Rather than
starting a new web service from scratch, you might find it easier to request
certain features from an existing one.

~~~
marcidale
Thanks, David - yes, we would love the input at POPVOX (info@popvox.com)

New alerts system is imminent, so please check it out.

BTW - we had our own go at crowdfunding for POPVOX. I explained on Quora how
we had to turn down non-qualified investors: <http://b.qr.ae/nXFsiM>

We ended up with a crowdfunding variation to raise the money for our iPad app
for Congress through Appbackr (MarkUp - the first app designed for Congress
<http://bit.ly/uLSrOT>). See article in Entrepreneur magazine on the
fundraising: <http://bit.ly/rKQSzS>

~~~
wtvanhest
Marci, I saw you guys present at Dingman (capital access network). Glad to
hear you got funded in an innovative way.

Did you guys move or stay in DC?

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dxbydt
Democratizing startup investing is a much bigger problem than democratizing
very simple speculation, so simple & straightforward a child can figure it
out. Look at google. Its trading around $580. Just 2 weeks back it was well
over $610. So you say, okay in a month it'll be back above $610. The 1 month
otm call on goog is $10 for a 600 strike. You check your pockets. You have
$10. You figure, you plonk down $10. Then check back on March 17th. If goog
crosses $610 you make the difference. Here I'll even do the math for you:
(580,-10),(590,-10)...(599,-10),(600,0),(601,-9),(602,-8),...(610,0),(611,1),(612,2)....(650,40)
etc. so that's the list of tuples, one has the google stock price & the other
the money you make. So you break even at 610 & after that the sky's the limit.
So can you bet $10 ? No. Why not ? Beats me. You can put down $1000 for a 100
bets. But you say, I don't want 100 bets. I just want 1 bet. 1 bet is $10. I
have $10. Let me bet. Nope. Sorry. You think this will change anytime soon ?
If you can legalize single option trading, you can structure any startup
investing on top of that. Many people will lose many $10, but some people will
make $10 too, and life will go on.

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JumpCrisscross
There used to be a time when anyone could sell shares in any company. That
didn't work out and so we got the Securities and Exchange Act of 1933. Crowd-
funding isn't fatally flawed, but it needs a lot more time to integrate the
last 400 years of capital market development history.

~~~
npt4279
Limiting an individual's investment to a maximum of $1000 goes a long way to
making sure Grandma doesn't lose her life's savings. As does the requirement
for companies to use an Internet intermediary that performs background checks,
verifies identity, holds funds in escrow, etc. The world is different from the
1930's.

~~~
jerf
What's the difference between being able to invest $1000 and $0? That's not
helpful to anybody. If I want to invest $30,000, I have to go find 30
startups? That doesn't make any sense.

~~~
npt4279
If you are an accredited investor (i.e., make over $200,000), current law
allows you to invest any amount you like. If you are not an accredited
investor, you likely can't afford to invest $30,000... so the thinking goes in
Congress.

------
robmay
I have a lot of experience here because a) in 2005 I started something called
"The Business Experiment" which was an attempt to have a purely crowd sourced
business. (<http://www.fastcompany.com/magazine/101/next-essay.html>) At the
time, I spent a lot of my own money on lawyers trying to figure out how to
give equity to people who aren't accredited investors.

b)I have since raised $10.5M in venture capital for Backupify.com, so I have
also learned that side of the world.

From my view, allowing anybody to invest a few hundred or a few thousand
dollars in a startup is a bad idea for a few reasons. First of all, the
startup world is glamorized by the media. Most startups fail. Most capital is
erased. No one writes about those companies, unless the failure is
spectacular. Studies have shown that on average, entrepreneurs will do better
financially in the "real world" of work than in startups. But the media
doesn't play this up, and as a result, society has a bias that is a
combination of the survivorship bias and recency bias that makes them think
startups are a good investment. Many wealthy people that I have dealt with
don't really understand the odds and risks of startups, so all the less likely
that your average Joe can do it.

Secondly, capital structure matters a lot as your company grows. If you are
successful, a bad capital structure can really fuck you over down the road
when you need bigger rounds. And some issues require a shareholder vote.
Average Joe doesn't know how to deal with these issues, and that scares
professional investors. An idea like this will get a lot of companies seed
capital, and they won't be able to raise later stage.

Third point - startups are really fucking hard, and will strain all of your
relationships in your life, including those with your investors. Hell,
Backupify is doing pretty well and it's still hard. Having to manage a bunch
of small investors can be a nightmare, and going through difficult times with
people you barely know, who don't do this professionally, will just make it
worse.

Here is my prediction about how this legislation plays out. 1\. It will
eventually pass, because it is sexy and cool and part of the American dream.

2\. Media will point to examples of companies getting funded that wouldn't
normally get VC/Angel funding, to show how great it is. These examples will be
thinks like companies outside of major startup hubs, companies that don't put
profit/shareholder value / growth first, companies that are highly unusual,
weird, or even too risky for VC, and companies that have non-sexy ideas that
can't get VC because they aren't mobile/social/sharing/whatever.

3\. Many will fail, but there will be at least one massive success, and that
success will become the poster child for why this works.

4\. But really, it won't work. People will lose money. There will be lawsuits
and complaints. There will be a bubble after point #3 happens, and some 60ish
dude will invest too much of his retirement in a dozen startups only to see
every one of them fail and his whole net worth wiped out.

5\. There will be outcry against this, and we will pass laws to regulate it,
taking us back to where we began, only in a much worse situation.

Now, all that said, I will say there is probably room for a new investment
scenario under two conditions.

1\. The amount is so low it doesn't matter. For example, the bar is $100 and
you can't invest in more than 5 at any one time. This makes your returns so
small, even with homeruns, to be almost irrelevant, but maybe it's fun and
cool and people will like it.

2\. There is probably room for an "almost accredited investor" clause. I'm a
perfect example for this. I'm not quite accredited, but probably will be by
this time next year. I understand startups quite well. So maybe a clause
saying that if you have worked 2 years in a venture backed startup, you can
invest up to $10K, that might be ok.

Anyway, those are my thoughts. It will be interesting to see how this will
play out.

~~~
webwright
Respectfully disagree.

Penny stocks? Real estate? Gambling? Entrepreneurship? Credit cards? No one is
stopping people from "investing" their life savings in any of these areas, and
people are losing everything in these areas every day.

We don't need to protect people from making bad decisions with their own
money.

Your arguments about the capital structure and lawsuits are pretty spot on,
though... under the current system. It doesn't seem too hard to bake some
protections into the reform. You don't see people suing casinos when they lose
their life savings there.

~~~
robmay
Well, but here's the problem... Backupify was my third attempt at raising VC.
Before I did it, I would have jumped at the chance to raise money from
anybody, even average Joes. But now that I know the difficulty in managing
investors and their expectations, I would never consider it. So this idea will
develop a lemons problem (similar to what you see in penny stocks) which is
that any entrepreneur who understands the game well won't participate and
won't raise this kind of funding, so you end up with the bad ones, and the
uneducated/inexperienced ones. Some of the latter will ultimately be
successful, but not enough.

------
appswell
I fully support this! To someone's point, we have an outdated system of
balances that are based on 400 year old common law, and put in place as a
consequence of the great depressions. S.1791 is a good bill, that puts the
proper protections, capping investments at $1k. Not riskless, but appropriate
amount of risk for investing. A fairer shake than the individual investor gets
in the days of algorithmic, fraud ridden Wall street, or for that matter, the
keno tickets the govt is happy to let them purchase.

~~~
lukeschlather
It should be stated as a percentage of gross income. Magic numbers are bad, in
software and law.

------
vsl2
The key here is the "accredited" investor restriction for funds that invest in
anything other than the most vanilla of securities (i.e. stocks and bonds).
This is also why most of us cannot invest in hedge funds or private equity
funds.

In protecting people from themselves, the government is limiting participation
in a potentially very lucrative area of investment to only those with money
(the rich get richer). I don't believe that everyone is equipped with the
financial knowledge to deal with the risk associated with participating in
alternative investment funds, but I'd much rather that everyone have the
opportunities to take the risks that they choose. Casinos are legal in many
areas, strip clubs are legal in even more areas, and shopping malls are
everywhere - all of these cause people to take arguably unnecessary risks with
their financial health (and some would say even greater than investing).
Particularly with the plethora of financial information available on the
Internet, the everyday Joe has more resources than ever.

I'd love to see Congress eliminate the "accredited investor" requirement for
investing in alternative funds so that everyone can have the same access to
investing in startups, private companies, etc. I'm sure more than enough funds
will spring up to meet investor demand, this being a capitalistic sociey and
all.

Finally, startups can choose to avoid the problem of many small direct
investments by ordinary investors (i.e. too many people to report to). by
accepting money only from the investment funds or from few large investors, if
such sources are available and willing. If such sources are not available to a
startup, then you have to go with the options you have, (e.g. many small
direct investors, self-funding, fail), as has always been the case.

------
padobson
I love this because it is effectively disrupting wall street from a legal
perspective. You don't need giant public markets anymore when you have the
internet, and entrepreneurs that know how to build applications that generate
money from lots of people should also be able to raise money from similar
people.

Although, if we as a an industry are going to focus on something
legislatively, I think we should start thinking about going on the offensive
in the copyright war. The MPAA and the RIAA are going to regroup and then try
to push a similar piece of legislation through. If we go on the offensive now
and attempt to pass legislation that will protect user-uploaded content sites
and apps like MegaUpload, Dropbox, Box.net, and others, then the web will be a
much better place for eveyone building apps like these in the future.

------
vaksel
I think something like what Goldman Sachs did with Facebook would work.

You create a Startup Mutual Fund...where regular folks can sign up and deposit
money into.

The fund then uses that money to invest into companies. i.e. they'd issue a
notice that a week from now they'll be investing into Startup Z and each share
would cost $X(actual cost per share + 10% fund operating premium)

If the round is limited, the shares would be assigned on first come first
serve basis.

Essentially a venture capital company but without requiring huge investments
to participate.

Then also create a marketplace where shares can be sold on the secondary
market.

Fund's revenue would come from a) fund's fee when purchasing b) fund's fee for
secondary sales c) yearly membership fee.

And this way you essentially just have the one investor and those who want to
invest small investments won't need to get accredited to get into the game.

------
jchung
We should all support this. We could unlock millions of dollars of crowd-
sourced funding for startups, supporting more innovation, creating more jobs,
and driving a healthy democratization of the spirit of investment.

As an added benefit, I think it is worth considering that allowing small-scale
investments will help to educate a large number of Americans on the basics of
investing and financial management. I think we'll all agree that we wouldn't
want folks investing their life savings, but $1,000 isn't going to break the
bank.

------
MikeNorman
This is super important. Everyday Americans should have the right to invest in
businesses. Think of the jobs we could create? Government shouldn't be telling
me I dont know what Im doing if I want to help a friend start a company that I
think can succeed. I get that unsophisticated investors need some protection,
but $1000 seems like a reasonable risk to allow folks to take on something
they believe in.

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dancole
This is a great way for Wefunder to attract future funders to their site.
Besides the traditional name and email address for a signup list, they're also
finding out how much people are willing to fund each year. To add to that,
it's also an open list where you can see who and how many people are going in
on it. One way to solve the chiken-and-egg problem.

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frobbin
What if you got a 'startup investor license' with the same effort and cost as
getting a real estate license? That way only the motivated who prove some
basic knowledge can participate. A side industry of investor courses and test
study materials would spring up. Even as someone trying to raise funding I
would like to educate myself with such a course.

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mapleoin
_All Americans—not just the wealthy and well-connected ..._

How about we turn that into:

 _All people—not just the wealthy and well-connected Americans ..._

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billshander
Definitely - kickstarter and peer-to-peer lending have proven the greater
public can make decisions like this - especially if there are some protections
and risk-abatement tactics such as background checks for founders and maximum
investment amounts per company.

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ck2
You really want this current congress to set it's eyes on something?

You honestly believe that will make something BETTER?

They blocked something as basic as consumer protection for over a year and
would have kept doing it for years more if they could have.

It's an election year, forget it. Try again in 2013 maybe.

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lcusack
This should go without saying - but please don't use the petition to populate
Wefunder's mailing list.

