
Wefunder (YC W13): Invest in Startups - npt4279
https://wefunder.com/
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pg_bot
Seed investing is not something for amateurs, in fact frankly I don't think
investing in public companies is for amateurs. I would tell ordinary people to
invest in index funds and don't invest in startups at all. You should not be
investing in startups because you think it is going to change your life. You
shouldn't be doing it unless you're rich enough that your life wouldn't be
changed by making lots of money. - Paul Graham

~~~
pg
Wow, that's funny. As I was reading that, I was thinking "what a thoughtful
comment for HN." At least I'm consistent.

Twould be nice if you punctuated it properly though.

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aashaykumar92
I'm a bit confused by this...why did you fund Wefunder then? "Amateurs" are
exactly the people that will be funding startups on Wefunder...

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pg
If you imagine investors organized concentrically with the sort who physically
show up on Demo Day at the center, I think the sweet spot for this type of
thing is the next ring out: people who are not focused on startup investing,
but who either understand startups well (like rdl) or are rich enough to learn
about them by trial and error.

~~~
aashaykumar92
Ok I see your point and agree with it, but Wefunder is metaphorically opening
up to nearly the entire universe by eventually allowing anyone to invest--it
doesn't seem to be doing anything to stop 'amateurs' from investing.

I'd like to believe that there are many people have a couple thousands dollars
that they'd be willing to invest in a startup that seems promising. In the
next year, I will theoretically be able to invest in startups via
Wefunder...and I am in college with just one startup under my belt. I like to
think I understand startups well but given my age and experience, I bet there
are people who understand them far better than I do...and far less as well.

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robomartin
> but given my age and experience

Given your age and experience you have NOHTING to loose. Experiment. Fail.
Learn. Succeed.

One of my all-time favorite sayings is by Mark Twain: "A man holding a cat by
the tail learns something he can learn no other way".

If you think you understand startups enough to risk $1,000, by all means, do
it! You will learn something regardless of the outcome. And, frankly, at your
age, if you are intelligent about it there are virtually no negatives.

~~~
aashaykumar92
Yes sir, I plan on doing so!

I was only responding to the seemingly-odd assumption that only the "next
ring" of investors is what Wefunder is going for--at least that's what I got
from pg's response to why he/YC funded Wefunder. To me, there is no way to
keep it to only this "next ring" and it doesn't seem that Wefunder is trying
to do this. They are trying to appeal to those who are even several "rings"
away.

~~~
robomartin
Good! Be absolutely fearless. Intelligent, but fearless.

Regarding funding for your venture/s. Forget it. Don't do it. At least not at
first. Save money and bootstrap one or a couple of ideas yourself. You will
earn you honorary MBA that way. You have to be smart about business before
venturing out into a larger domain (unless you have good mentors who can guide
you).

Companies like Facebook --where the founders had absolutely zero business
experience and zero idea of where the thing was going or how it was going to
make money-- are exceptions to the rule. Most businesses require a reasonable
grip of business management and the identification of a good business model
from the very start. And even with that failure is far more likely than
success. So, have fun with it and don't risk too much on each experiment. Once
you find something that gains traction take a huge leap and go for it.

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dicletian
"All the small investors (often < $25k) invest in the Crowd Fund, which then
invests as one entity in the startup."

So your company must create and manage a new investment vehicle for each
startup to raise money on Wefunder? I assume so, otherwise the investors in
one holding will incur the liability of the fund being sued by the
investors/investment of another.

According to your FAQ, you are not charging any fees yet and have raised about
$500k to support your operations. On top of operating the parent business, for
each entity you will have to prepare and send out K1s, make numerous
compliance-related and SEC filings, and correctly disburse funds once
liquidity arises. As a fund, you'll also possibly have to prepare annual or
quarterly mark-to-market valuation reports for your holdings. All told, this
could run into the tens of thousands of dollars per entity per year.

What happens if your company runs out of money to properly steward the funds
you raise? Do you have a strategy to mitigate legal / compliance costs?

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sochanger
That's right, small investors invest in a separate investment vehicle for each
company that will requiere many of the actions that you describe. Second
Market and Funders Club work the same way, and the costs do not amount to 10's
of thousands of dollars per year. We have set aside enough funds deal with the
future costs of each entity.

~~~
dicletian
SecondMarket is a different animal -- they structure liquidity tenders for
late-stage private companies and collect portal fees per seller, and, in the
past, ordinary secondaries transaction vigs. They also run a large,
traditional financial services business that has historically paid for much of
their involvement in the startup world.

Funders Club is also a somewhat different animal -- they offer investors
access to venture funds where risk is pooled, and also do single-purpose funds
that resemble your product.

You are exclusively offering investors access to one investment and one set of
risk. Let's say you can get it down to $4k/yr:

* Accountant to prepare and send out K1s to 50 shareholders $1000

* Delaware agent & franchise tax $400

* Legal, regulatory filings, 4 hrs $1000

* Your or your lawyer's time to give legally binding answers to questions from 50 shareholders $?

* Valuation analyst hired by you or firm, 5 hrs $600

* Broker dealer / misc / insurance $1000

These numbers sound pretty low to me but let's say you have economies of
scale.

Making money solely when investors make money still seems like a reach. If you
make 100 investments per year and have a decent team you will be burning a lot
of cash -- the only way to recoup that cash will be to charge a transaction
fee or keep raising money until carried interest pays out (which it often
doesn't). Either way, it's something you should address in your disclosures.

It's one thing not to have a fleshed-out revenue model if you are a consumer
site: nothing will happen if you die except for some upset users, but you
can't just suddenly unwind a group of 400 investment funds when the underlying
capital is tied up in illiquid private stock.

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jcampbell1
I really hope uncapped notes are not allowed. If you look at the history,
Dropbox turned a $6M investment into a $5 billion dollar company. Google
turned a $25M investment into a $250 billion dollar company. I have a feeling,
one of these startups is going to turn a $1M uncapped investment into a $1B
company, and there are going to be some really hurt feelings. Someone is going
to invest $1000 in the next Google/Dropbox/AirBnB and walk away with $1200.

~~~
tptacek
Wait, what company went from uncapped note angel funding _directly_ to a
billion dollar valuation?

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jcampbell1
I never said that.

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rdl
This looks great -- nice to see more options for individuals to invest. I
don't think you should ever be convincing someone to invest in startups, but I
was actually looking for a way to invest in microryza, and they used your
system.

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HockeyPlayer
Lots of new people in this space lately: AngelList via SecondMarket,
FundersClub, MicroVentures.

I have an investment in a seed fund run by a prominent angel, so I have some
insight into recent valuations. I get the feeling that these online investors
are getting inferior terms. For example, convertible debt usually comes with a
conversion discount and a cap, but the deals I've seen on FundersClub have
been missing one or both.

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redblacktree
As a founder, more startup-friendly terms sound good to me.

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tomgallard
Maybe I'm missing something- but I can't see the valuations the companies are
raising at anywhere (e.g. I can see that Company X wants to raise $490,000 -
but how much of the business this is for)

Surely this is question number 1 when you want to invest in a company?

EDIT- Found it once I clicked the "Apply to invest" button". Maybe it should
be a bit more up front though

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npt4279
Thanks - we'll consider that.

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SCAQTony
I am not impressed.

You are issued stock or a convertible note after your initial investment and
you can cannot convert that note till the company is either bought-out or goes
public.

What if they don't do either and simply reinvest the "profits" back into the
company thereby showing no profits?

What happens if the board of the directors of the company you invested in
dilutes your shares by issuing more-and-more stock to themselves and others
year-after-after till your percentage of the company is practically non-
existent?

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nlh
I hope this doesn't come across as dismissive - but that's kind of the deal
you get when investing tiny amounts (relatively) with early-stage startups.
You're basically investing in the team (and their assumed honor) in the hopes
of a big exit in the future. Or, more idealistically, in the hopes of being
part of the Next Big Thing.

If you're looking for dividends (ie profit return) or management oversight -
as an investor - you're going to either invest more and get your own terms or
stick to the public markets.

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guptaneil
This is interesting. Are the blurred images behind "Mystery YC Company"
relevant to the company in any way, or just random backgrounds? The reason I
ask is that one of them shows a screenshot for a startup that I know is not a
YC company, and I know they aren't raising since they were recently acquired.

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aashaykumar92
Holy crap, this is true visionary...great idea and excellent execution!
Hopefully everything goes through on the government-side so that anyone can
invest in these startups.

Question, though: Is the plan to allow any company to sign up in 2014 or will
there still be some moderation in which companies can sign up?

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npt4279
We'll have a self-service platform which founders can use to fundraise
privately. We make it easy to accept investments in about 3 minutes with
automated legal docs, e-signature, and ACH payments.

But it'll always be highly curated for featured startups that are public on
Wefunder. We are starting out with one per week.

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wasd
Seems pretty interesting but after I certified for being an investor I got
this:

Startups Fundraising Get first access to hot deals. 7 days left.

with no start ups listed. It seemed like there were a few presign up...

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jwb119
How are you guys avoiding having to register as a broker dealer before the
JOBS act goes into place? (I'm assuming you're applying for Funding Portal
status afterwards)

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sochanger
Great question. There are a few reasons we are able to do this now, mainly
that we are not being compensated in any way. That being said we do have a
relationship with a broker dealer to give us flexibility moving forward.

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JimWillTri
This is what you said on site: How we make money

We earn a 5-8% cut from the total amount raised, depending on the stage of
funding.

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danvoell
Isn't Funders Club also YC? What's the difference?

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mrschwabe
Love the concept, not the name. "Wefunder" comes across as slightly generic
with a hint of cheese - the last thing you want as a company specializing in
financial investments.

Just my 2 cents; some friendly constructive criticism; something to note
perhaps in the near future when you are ready to do another brand evaluation.

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mkeung
When I click "certify as an investor" I automatically get directed to sign up
for early access, with Facebook.

I am hesitant to enter my information, because I don't know what the
certification process is like. It would be great if you could add this
information somewhere? I highly doubt I qualify so it would be for nothing.

~~~
jgj
Income for 2011-2013, net worth >< 1,000,000 and agreeing that you understand
the risk of investing in startups, plus a signature

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niggler
I haven't tried it yet, but based on your statement:

The requirement is `or`, not `and`: you are still considered an accredited
investor if your net worth exceeds 1M and you have 0 income for the past two
years. You are also still considered an accredited investor if you have 0 net
worth yet have income exceeding 200K/300K

The normal way a form is laid out is that it asks you how you are considered
an accredited investor (circle one oval) and give the relevant information.

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rdl
Their documentation was actually ambiguous until you submitted, too (I used to
qualify on income but not assets, now I qualify on assets but not income; I
wasn't sure if I'd go through, but did).

IMO, I'd probably err on requiring more as an investment market like this,
just to avoid the odds of an early lawsuit or other dispute -- $200k/yr AND
HNW AND previous investment experience would be totally reasonable. But that
obviously makes it harder to recruit people.

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netcan
How exactly do accredited investor laws work? If a private company allows a
non accredited investor invests to put in $10k in exchange for stock, who
broke the law?

If this new law comes in, are foreign investors allowed to take part?

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ntomaino
How were unaccredited investors able to invest in Wefunder even though it is
not legal yet?

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npt4279
We used state blue sky laws to take a limited number of unaccredited investors
legally. We felt it was important to eat our own dog food, and so went through
the extra legal hassle. <https://wefunder.com/post/16-how-to-legally-crowd-
invest-now>

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mikeleung
thats awesome, its a crowdfunding site that is crowdfunding another
crowdfunding site

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julienmarie
Damn, I wanted to post that comment :D the other crowdfunding site might
launch a research project on how to maximize crowdfunding using machine
learning

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irollboozers
Not machine learning, but actually social network tuning for the stock market.
I think it could be adjusted to towards crowd investing.

I wish I was joking. I should get that project up...

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wilfra
Just applied to put $1k into a YC company that I was very impressed with.

I hope this becomes the default for YC companies. Fuck the VC's - invite the
public to demo day and crowd fund the seed rounds!

Quick math: investing $1k into Facebook with the same terms would be worth
over $8 million today. For Dropbox, over $600k. For an OMGPOP-sized exit,
$25k.

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swalkergibson
Can you show your work on that math, please? I am at work and do not have the
ability to go through it myself, but that seems too good to be true...

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wilfra
These are just rough calculations and they ignore things like whether the
valuation is pre or post-money and dilution from additional funding etc, but
it gives a ballpark idea of potential returns:

$1,000 investment at $8,000,000 valuation = 0.0125%

Facebook valuation today of $63 billion x 0.000125 = $7.87 million (was a
little off)

Dropbox valuation currently at least $5 billion (they raised at a $4 billion
valuation in 2011) x 0.000125 = $625k

OMGPOP sold for $200 million x 0.000125 = $25k.

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csomar
Facebook raised a total of $16B. In each round, you get your share diluted.
You'll need the history of the funds raising and the dilution your share is
taking, but I guess, you'll hardly reach $1m or even $100K after all dilutions
take place.

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wilfra
Peter Thiel invested $500k for 10% and was left with only 2.5% at IPO, so it
looks like dilution is indeed stronger than I assumed.

At that dilution rate, $1k in Facebook would be worth "only" about $1.9
million today.

