
Republic – Now everyone can invest in startups - jrbedard
https://republic.co/
======
Animats
Interesting. These appear to be JOBS act short-form mini-IPOs.[1] That's
something new, which just became possible this year and hasn't been used much.

Here's Farm from a Box's SEC filing.[2] Typical crappy terms - no voting
rights, no anti-dilution, no transferability for one year, insiders have
control.

Nobody associated with the project has a farming background. They have two
employees. One is a liberal arts majors from UC Berkeley and one has an
unspecified degree from UCLA. They do not have a working prototype farm
according to the SEC filing.

The filing for Youngry [2] is more interesting. They want to start a glossy
web site for young entrepreneurs. They claim lots of good contacts. (Miss Las
Vegas?) They're only asking for $50K, which isn't enough. Two-person business.

Republic takes a 5% cut; that's how they make their money.

This is a reasonable concept, but the current set of deals isn't very
impressive. These are people looking for Series A funding and would probably
be rejected by YC. The idea behind the JOBS act short-form IPO was supposed to
be that when your startup got too big for angel/friends and family/Kickstarter
funding, there was a next level and an exit strategy for the original funders.
It wasn't intended for startups this early.

You can look up these companies on the SEC's EDGAR system. If you scroll down
all the way to the end of Republic's pages, there's a link.

[1] [https://media2.mofo.com/documents/120416-pli-quick-guide-
job...](https://media2.mofo.com/documents/120416-pli-quick-guide-jobs-act.pdf)
[2]
[https://www.sec.gov/Archives/edgar/data/1679373/000167937316...](https://www.sec.gov/Archives/edgar/data/1679373/000167937316000001/FFABFormC.pdf)
[3]
[https://www.sec.gov/Archives/edgar/data/1679372/000167937216...](https://www.sec.gov/Archives/edgar/data/1679372/000167937216000002/YoungryFormC.pdf)

~~~
jliptzin
Regardless of the terms, all of these companies appear to be just terrible
investments.

~~~
tormeh
That's my impression too. Some, like Cringle on Companisto, looks OK-ish, but
most of it is crap. At worst it's "delightful" candy subscriptions and at best
it's a _slightly_ better implementation of something that already exists.

EDIT: Having just looked at Companisto's page I now get lots of advertisements
all over the web from them. So that's why no good start-ups bother with crowd-
investing - because the portals take a big fat cut and so the start-up
effectively gets a lower valuation.

------
twblalock
You don't get shares if you invest -- you get something called a "crowd safe":
[https://republic.co/learn/investors/crowdsafe](https://republic.co/learn/investors/crowdsafe)

More info here: [http://www.crowdfundinsider.com/2016/06/87034-republic-
adds-...](http://www.crowdfundinsider.com/2016/06/87034-republic-adds-creates-
crowd-safe-investing-vehicle-for-reg-cf-issuers/)

I'm a bit leery of these. According to the article, "unless specifically
negotiated, SAFE holders do not have any voting or information rights." I also
suspect that the shareholders get taken care of before crowd safe holders in
legal or bankruptcy proceedings. The rights of crowd safe holders haven't been
tested in court.

I think the lack of rights and additional risk inherent in crowd safes would
need to be compensated for by some kind of discount relative to what investors
pay for shares. Otherwise, the risk-adjusted return is lower.

I would also be skeptical of the potential of a startup that can't convince
normal VCs to fund them. If people who do this for a living don't think a
startup is worth investing in, why should I?

~~~
leesalminen
> I would also be skeptical of the potential of a startup that can't convince
> normal VCs to fund them. If people who do this for a living don't think a
> startup is worth investing in, why should I?

There are plenty of SaaS companies that are naturally limited in revenue
potential.

In my experience, VCs are not interested in a company with a conservative
forecast of 10MM ARR in 5 years. These are still viable businesses that need
capital to actualize the plan.

Alternative lending sources are crucial to these companies. While the terms of
this particular idea are not ideal, I think we will see a lot of new ideas in
this realm over the coming years and some will be great!

~~~
mdorazio
How is an investor in such a company supposed to actually get a return? Unless
the company is paying dividends or something similar, the only payout comes
from selling your shares or if the company is acquired at a premium. But who
is going to buy these companies with a conservative "slow and steady" growth
rate and market share?

~~~
rlucas
There are lots of ways to get a return. I helped start Lighter Capital
(originally "RevenueLoan"), which invests a lump sum that gets repaid as a
percentage of revenue (like a royalty). That model, Revenue-Based Financing,
is harder to game than dividends (management can and often does make profit
"disappear" but rarely has any incentive to make revenue disappear).

You can also have redemption rights or dividends. Depending on tax treatments
these can be reasonably lucrative.

Of course, if you tautologically declare that the only payout is from an
"exit" then no exit, no returns. But historically speaking "exits" are the
exception, not the rule -- yet businesses have been aggregating capital and
rewarding investors for centuries.

~~~
mdorazio
I totally agree, but in cases like Republic with a Crowd Safe, none of those
options seem to apply unless I'm missing something. My question was for crowd
funded smaller companies that have low potential of an exit - in those cases
how is a crowd funding "investor" going to realize a return?

~~~
rlucas
Very fair critique. The SAFE for all its merits is an exit-centric security.

------
tspike
The general counterargument to the "we're in a bubble" observation has been
that it's all private equity, that people aren't risking their houses or
401(k)s on startups this time around. This would appear to be a move in that
direction.

~~~
fullshark
It's the modern day equivalent of public investment in penny stocks.

------
inputcoffee
There are a number of similar sites (wefunder was YC, and Angellist dominates
the space).

We shouldn't treat the "public at large" like kids, and they have the right to
do what they want with their money.

HOWEVER, I do hope that people don't get hopped up on TechCrunch stories about
gazillion dollar exits and then cash out their 401k to invest in some company
or another.

They should know that the vast majority of startups fail, and that the chances
are any particular one will fail. They should also understand that it isn't
worth the due diligence for $100 or something, so you're really taking a flier
unless you piggyback off someone else's diligence (which you should).

------
agconti
Startups as investments are very risky with long payoff horizons. With their
limited funds, this is a poor investment for the average investor. I can't
help but feel like this will hurt more people then it will help.

~~~
crypto5
I think it is healthy strategy to dedicate 5-10% of investment portfolio to
high risks investments like this, even for average investor.

~~~
notfromhere
"SAFE holders do not have any voting or information rights".

With this kind of agreement, it's basically gambling since most info on start-
ups is basically PR fluff. At least public companies have to publish annual
reports and real investors get information rights.

~~~
crypto5
Most of the startups have negative cashflow anyway. Early investors invest
into potential, idea, team, tech, know how, market share.

------
jonpaine
It appears that the Startup/issuer sets a static offering price [0]. When I
envision how crowdsourced investing would reinvent this space, a huge
component of the value added would be a degree of price-elasticity and
feedback. It doesn't have to be a full-on auction, but getting the pricing
right (for the issuer) seems like THE killer feature here... (thinking back to
the concept of how Google priced their IPO )[1]. Offering a product that
facilitated more innovative pricing structures at offering would be extremely
compelling - and would greatly increase Republic.co's target market as well.

[0]
[https://republic.co/learn/issuers/how_it_works](https://republic.co/learn/issuers/how_it_works)
[1]
[http://www.wsj.com/articles/SB108328345314098183](http://www.wsj.com/articles/SB108328345314098183)
(potential paywall)

------
tptacek
Don't current Title III rules make it legally risky for companies to crowdfund
like this? The last thing I read about this suggested that crowdfunding like
this could put a startup in a position of having to effectively go public very
early in their life --- which would suggest that none of the best startups
would crowdfund, which would create a major adverse selection problem for
Republic.

~~~
pmen
You're right -- a company with $25M in assets and 500 unaccredited
shareholders is essentially forced to go public. That's why traditional
security instruments are poorly suited for investment crowdfunding. We created
and open-sourced a derivative of the YC Safe called the Crowd Safe to solve
for this (more at
[https://republic.co/crowdsafe](https://republic.co/crowdsafe)).

------
justrossthings
Republic - Invest in the startups real investors won't invest in

~~~
ryandrake
That strikes me as a very cynical view, and I consider myself to be a pretty
cynical guy. You could also make the same argument about other market
platforms:

"Ebay - Buy things real shoppers won't"

"Uber - Get a ride somewhere real taxis won't go"

"Monster.com - Hire people real employers won't"

Is it really that different?

~~~
clock_tower
I'd call the appraisal justified. At least from where I sit, I'd say that the
equivalent to eBay or Uber would be listing stock from startups that also have
VC funding, and selling actual shares in the company.

------
skrebbel
Wow, I'm blown away by the negativity in this thread. I know Silicon Valley is
conservative but this is killing it.

In Europe (of all places), this sort of stuff has been going on for a number
of years now. The first startup I worked for had gathered its €150k preseed
funding from over 20 people. Not even with a convertible note, they really all
went to the lawyer's office together. It was pretty nuts, but it got the
product out (and then tanked miserably but hey, people knew what they were
getting into).

Sites like Leapfunder
([https://www.leapfunder.com/](https://www.leapfunder.com/)) have been doing
what Republic does for years, but then in Europe. As far as I can see, the
only reason the US is behind on this one is the "accredited investor" rule
that European countries don't appear to have. I wonder how Republic works
around that but I guess it's a good development. I have a hard time
understanding how any "you're only allowed to X if you're rich" law can be
fair (and I'd assume that especially libertarian HN would be with me on that
one).

But still, HN's conclusion is that it's stupid to do this? What? Why is it
stupid to invest $5k in a startup but not to invest $500k in a startup? If you
ask me, that's irrational to the bone. If you really can't imagine some good
reasons why a company wouldn't want to raise from a VC but would prefer to
crowdfund, you didn't really try very hard.

I can't find it back but did HN react the same when Kickstarted got launched?
Is there really that big a difference between "first to get a Pebble" and
"first to get some Pebble shares"?

~~~
twblalock
> Why is it stupid to invest $5k in a startup but not to invest $500k in a
> startup?

Because if you invest $500k, you get information rights, and a significant
number of votes. If you invest $5k, you get nothing, and you just have to hope
the company makes good decisions. It's like buying a $5k lottery ticket --
it's an investment based entirely on trust without any information,
accountability, or influence over the outcome.

I suspect that the real reason companies want to crowdfund is to raise money
without giving information and voting rights to their investors.

~~~
burrows
> it's an investment based entirely on trust without any information,
> accountability, or influence over the outcome

Assumes that an investor's extra-monetary 'influence' on a company is +EV.

~~~
marcoperaza
Even if it's not, they have information about the finances and plans of a
company that are highly relevant to the decision to invest.

And it also protects them against the worst case, where management acts in
ways that are plainly hostile to shareholder interests.

------
astrange
> Crowdfunding investing is highly speculative and every investment may result
> in a loss. By investing small amounts across multiple companies, you can
> reduce your risk compared to a large investment in a single company.

But there's only four companies.

> Do your own research. Read the documents provided by each company you plan
> on investing in. Get independent legal, accounting, financial advice. If you
> have any questions or need more information, ask the company.

Sounds expensive.

Maybe we crowdfund the advice too? Is someone going to make a robo-VC like
lendingrobot?

------
bArray
One of the tags for projects is "Women Founders". In theory that shouldn't
make a difference as to how investable a project is or isn't? It seems as
ridiculous as giving the founder's favourite colours or ethnicity. I just
don't understand what they were thinking when they put that feature in.

------
justinlardinois
I can see this having all the same problems Kickstarter has with video games:

\- A bunch of people whose only experience with the industry is as consumers,
with no real knowledge of how investing or the field they're investing in
works

\- Companies that have little more than an idea and big promises, lacking the
skill, manpower, and knowledge of how to see a product through from conception
to release (plus a lack of knowledge on how to obtain those things)

\- Companies that stop updating and eventually just run off with the money

\- People who think they're entitled to a refund if what they invested in
fails

Will "Angel Investor at Republic" overtake "CEO and Founder at Company That Is
Literally Just A Facebook Page" as the job title of choice for wannabe tech
bros?

------
Osiris30
Jared Friedman, YC Partner, post from 3 days ago, on raising money online and
the differences between the various crowdfunding services, Angellist
syndicates and YC:

[http://www.themacro.com/articles/2016/08/raising-money-
onlin...](http://www.themacro.com/articles/2016/08/raising-money-online-
advice-for-startups/)

------
minton
How is this different than wefunder.com?

~~~
astrange
This really does seem the same. Actually, I invested in one there just so say
I could.

But there's some weird things on this site:

\- there's something called investment clubs where you can recommend companies
to nearly-passive investors and get 10% of something out of it. But there's no
inventory on this site either so why are they being paid for no work? I'm sure
I could guess every investment just from the name of their club and skip the
middleman.

\- several companies are just selling you bonds ("revenue share" and "loan
money"). Seems strictly worse than buying some regular bonds, and why does a
startup want to return capital anyway?

------
akhatri_aus
It's not 'now' that it's suddenly possible.

CrowdCube (European startup) has been doing this for years.

------
philippnagel
Why is a US bank account necessary while being a US citizen is not required?

~~~
ch4ch4
Probably due to anti-moneylaundering requirements...

------
HillaryBriss
Is this a signal to the smart money that it's time to get out?

~~~
clock_tower
I think it is.

(But personally -- although I can't prove that I'm smart money just yet -- I'd
recommend avoiding tech stocks in the first place. Don't just think of the
fate of Myspace and Netscape; think of Iomega and Sun Microsystems...)

------
bandrami
What could possibly go wrong?

------
melvinmt
oops, never mind :)

~~~
tspike
Wrong article.

------
LordHumungous
Better investment plan: Send me your money via paypal and I'll call you an
idiot.

~~~
astrange
Those are called findoms, but you'll have to try advertising somewhere else.

