

Ask HN: Pay Rent With Micro Equity? - ada1981

We thought there might be under utilized property asset holders (commercial or residential) that may be interested in filling them with start-up entrepreneurs in exchange for equity. So, we are building http:&#x2F;&#x2F;BootRent.com as part of the RailsRumble this weekend to test the idea and see if folks find it valuable.<p>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).<p>What do you think?<p>1) Would you use this as a start-up? Why &#x2F; why not?<p>2) If you have a spare room, office space, etc. would you be excited about supporting a start-up?<p>3) Why will this fail?<p>4) Why else will this fail?<p>5) What should we add? What else should we do?<p>Also, we&#x27;d love beta users and feedback. The beta will be live on http:&#x2F;&#x2F;BootRent.com<p>PS -- we&#x27;ve reached out to &quot;The Rent Is Too Damn High&quot; Party founder and NYC Mayor Candidate Jimmy McMillan about being our spokes person, but are still awaiting a reply ;) (seriously)<p>http:&#x2F;&#x2F;bootrent.com
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gibybo
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?

~~~
ada1981
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.

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DividesByZero
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.

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ada1981
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.

~~~
DividesByZero
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/1337007)

[https://www.airbnb.com/rooms/133974](https://www.airbnb.com/rooms/133974)

[https://www.airbnb.com/rooms/264052](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

~~~
saryant
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.

~~~
DividesByZero
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.

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awad
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...](http://www.nytimes.com/2007/09/14/technology/14landlord.html?pagewanted=all&_r=0)

~~~
ada1981
cool thanks for the resource.

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pmarca
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.

~~~
ada1981
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.

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raldi
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.

~~~
samerbuna
Thank you! we're excited to hear some validation.

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lsc
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.

~~~
ada1981
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!

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cjg
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.

~~~
ada1981
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).

~~~
cjg
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.

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minimaxir
So, how exactly would your startup handle costs such as insurance if your
entire revenue is all theoretical?

~~~
samerbuna
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.

~~~
Adrock
It seems like the valuation algorithm could be used more lucratively and
directly in a more traditional VC way.

~~~
ada1981
Yes, I think there might be some sort of "reputation" indicators, but it will
prob need to be convertible debt.

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edencraze
"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.

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mgirdley
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.

~~~
ada1981
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.

~~~
mgirdley
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.

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arikrak
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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samerbuna
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
samer.buna@gmail.com)

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matchagaucho
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! :)

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ada1981
Thanks for the marching orders ;)

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electic
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.

~~~
ada1981
Curious how you might simplify this to not mess up the cap table.

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zbruhnke
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.

~~~
ada1981
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.

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wbeckler
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](http://AllTheRooms.com).

~~~
ada1981
Beautiful site! We'd love to talk to you about it. And our thoughts exactly
re: the convertible debt piece.

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vkatharki
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 ?

~~~
ada1981
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.

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edencraze
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?

~~~
samerbuna
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.

~~~
ada1981
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?

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edencraze
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.

~~~
ada1981
Thanks, will shoot you an email!

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pkfrank
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](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.

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ada1981
HA! Amazing. Will shoot you an email. Thanks!

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piratebroadcast
I imagine you will have a hard time convincing people to give up collecting
cash from rent for theoretical equity.

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samerbuna
True, but what if you're not able to collect decent cash for the property?
(maybe this is not a SF/NY market)

