

Ask PG: What made you change your mind about crowdfunding? - dmarinoc

Paul,<p>Four months ago, in a thread about crowdfunding (http://news.ycombinator.com/item?id=3893783) you said that "having a very large number of inexperienced investors is the worst scenario possible."<p>FundersClub is a YCS12 company, so I´m curious: what made you change your mind? The whole scenario? A different approach if an entity works like a proxy? Is there any secret sauce you can share?
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brudgers
There are two different business scenarios and I doubt PG has changed his
views radically (and if he has, it's secret sauce anyway).

The question to which PG responded
[<http://news.ycombinator.com/item?id=3893783>] was along the lines of "Why
not open up YC to crowd funding?" The answer was that there nothing for YC to
gain by encouraging a rabble of investors jump into YC's pudding. In other
words, PG believed that accepting crowd funding would be a distraction to YC
companies (and implicitly therefore lower the value of YC's investment).

On the other hand, funding a startup through YC which makes money by providing
services to people who think crowdfunding is a great idea (and perhaps solving
some of the problems along the way), may be a profitable investment for YC.

In other words, PG didn't advocate crowdfunding as a better source of capital
than the sources of capital YC has been using for YC companies . However, this
does not mean that crowdfunding services are not a potentially sound
investment for YC's partners.

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jkopelman
Not trying to answer for PG, but the reason I think FundersClub is different
from other crowdfunding options is that it does NOT result in the company
having a large number of inexperienced shareholders. Rather, the company has
just one shareholder -- the FundersClub fund. That way the entrepreneurs don't
get distracted by having to deal with a ton of individual shareholders -- no
updates, no chasing them down for signatures/approvals. The company gets the
benefit of a much larger base of capital but only has to deal with one
experienced shareholder.

~~~
larrys
"but only has to deal with one experienced shareholder."

Otoh it also gets a potentially vocal group that can create much noise if they
disagree with the actions of the company (and much more quotable by the press
for that matter).

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nadam
Sillicon Valley investors are interested in funding markets being non-
efficient. They are not interested in making themselves a commodity.

Commoditize your complements: make startups commodities but preserve early
stage funding a non-commodity.

I wrote about this years ago when pg gave a talk about opportunities to make
markets efficient:

<http://news.ycombinator.com/item?id=1655800>

I guess FundersClub makes some kind of 'secondary investors' a commodity while
preserving Sillicon Valley investors 'primary investors'. Also funding at
FundersClub seems to be not in the very-early-stage, so the funders are
already not competitors to Y-Combinator.

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pg
FC aggregates the investors the same way a mutual fund does.

~~~
pilom
This seems like a non-answer to me. There is still the problem that "For
startups, having large numbers of investors is bad, and having inexperienced
investors is bad." Even in the FC model of being a mutual fund, there are
still lots of investors, and they are still inexperienced.

A much more satisfying answer would be along the lines of: "I don't want the
startups I fund to be croud funded because I believe they wont get the support
they need, however I have no problem personally funding a company which
manages the crowd-funding movement because that could be profitable"

~~~
neurotech1
I suspect pg is suggesting that start ups don't need the distraction of
dealing with a large number of investors directly. It seems FC solution is to
combine and handle the "investor relations" for the crowd of investors.

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mayukh
I'm not sure what the proper etiquette (lot of upvotes but no one including pg
has responded here) but I'd certainly be interested in a discussion around
crowdfunding.

My take on this: Crowdfunding will be hard to execute -- novice investors,
multiple sources of bad advice, selection biases (the worse companies will
attract the 'worser' investors).. the list goes on.

With that said there is a lot of genuine interest in the model and there are
bound to be atleast a couple of platforms that get traction . If you were YC
with access to pick the best possible team to make this happen -- why wouldn't
you invest ?? Its such a small portion of your investments and you get that
diversification.

Second does not matter what your personal convictions are, the only way to
know for sure is by trial and error -- who knows crowdfunding maybe the model
of the future.

Finally you are supporting a good cause -- there is a lot of populist rage
against the investor class (not VC's in particular but more wall st types),,
allowing companies to go around 'wall st' and giving the lay person a chance
to be a part of the next facebook is a great story.

My 2 cents. Thanks

~~~
nadam
"giving the lay person a chance to be a part of the next facebook is a great
story"

Not necessarily lay person. For example maybe a world-class database
technology expert in Russia wants to invest some thousand dollars into a
database technology startup. Maybe he has more understanding about the
technology/market than so-called 'experts' (Sillicon Valley investors).

~~~
vnchr
That begs a couple of interesting questions regarding how crowdfunding LPs
will be able to add value to their investments, and what companies will be
inclined to disclose.

At the onset of crowdfunding, less sophisticated transaction arrangements are
likely to not prioritize those two scenarios. But it makes sense when we think
of crowdfunding at its maturity.

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tomasien
FundersClub has 2 important elements, I believe, (PG correct me if I'm wrong)
that probably made it click:

1\. It's not dependent on the JOBS Act. It's like Angellist, in that they vet
to see if you're a legitimate investor, except you can actually invest right
there on the platform. With the proliferation of standard seed docs, this
makes a ton of sense.

2\. It's curated. It's not a free-for-all, it's going to make impactive
differences in targeted companies. That's dope.

3 would be their secret sauce and their plans, which I'm sure are awesome.

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alttab
My guess is FundersClub gives equity as a perk - but not necessarily voting
control or a board seat?

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skilesare
To me, I see things like kickstarter have uncovered a massive market of
'investors' that don't want a monetary return. The extra benefits are more
than enough for most people on kickstarter. I guess we'll see some back lash
in a couple of years when some of those companies start selling for millions.
But for now, if I fund a game...all I really want is the game. The APP.net
'investors' seem to be happy with access to the system.

