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Indiegogo to launch campaigns combining perks and equity investment (techcrunch.com)
208 points by artsandsci 284 days ago | hide | past | web | 75 comments | favorite

This is the future of startup funding. Money isn't the big problem with VCs, it's the lack of vision and old boys network mentality.

Real people with small amounts of money can easily fund all of the great ideas in the world. Even big ones I think, like cancer research. If properly controlled (diversified, limited) it really could be the best way for people to invest maybe 10% of their savings.

We just need a lot more work done in this area until it's safe and simple for people and companies. This will be one of the many things that cause technology to accelerate even more in the future.

I don't know why this isn't the top comment. I feel that Hacker News readers, despite their demographic, are often surprisingly averse to new ideas that challenge current tropes.

There are a number who are afraid of equity crowdfunding for the reason that some consumers will get fleeced. While that is an admirable sentiment, if it was frankly more genuine there would be more effort put into curbing the thousands of "financial vehicles", payday loan companies and MLM's that scourge the poor. This isn't that. Yes, we need limits and constraints, but there's too much at stake to throw the baby out with the bath water.

I think that it needs to be paired with an elaborate vetting process that still is missing in crowd funding projects. Why can't we have organizations that provide Technical Due Diligence, etc.?

In other words, I completely agree with you. Currently VCs (and many Angels) are like major label record companies: they are more risk-averse than they realize, they operate in a strict handful of myopic categories, and they are unashamed of the old boys network aspect of it. It's all ripe for disruption, and while the effect of that might mean some consumers will be cheated, we can mitigate that portion. And the upside is huge. You are right, it would absolutely "cause technology to accelerate even more in the future." The future could be much brighter if we can figure this out.

I think the concern is that before the laws limiting this went into action in the 30s, some people got fleeced for a huge chunk of what they had. It's extremely hard and time consuming to do proper due diligence on bleeding edge companies, and many consumers don't have even the basic background for evaluating technical ideas. See the massive Kickstarter success of the razor that cuts with a laser, run off of a couple of AAs or some nonsense.

Your idea for technical vetting organizations is an interesting one that might solve some of this, but unless it's mandatory for getting investment, I imagine that most companies won't bother.

This is sort of the function that syndicate leads can provide, though.

I get that concern, and make no mistake it's mine as well. The Kickstarter laser razor can be matched, though, by venture-backed nonsense like uBeam. And that will happen. VC's aren't better, they are just fewer. We can't stop people from taking their paycheck to Vegas, but we can enable those who want to invest responsibly to do so to a greater degree.

And my point is that I'm really driven by the upside here. We're on the cusp of huge technological change and what's holding us back is the pedestrian way we're approaching it. We're facing 21st century potential with 1960's Mad-Men-styled cigars and handshakes.

This tide will lift all boats. (Yes, silly and fraudulent projects will get funded, maybe even more so, but so also will the truly innovative projects we didn't even know we've been waiting for.) This is the moment in history when we need to liberate innovation from the current gatekeepers of sweaty bald men in suits who are really just looking for Facebook and Snapchat clones, to the public to better unleash the potential of what's possible.

I get what you're saying, and I want to be optimistic about this too. I agree that it will likely spur a lot of innovation if we make it easier to invest in interesting early-stage projects. And yeah, VCs definitely do get fleeced as well, I like Theranos as an example. They're more disciplined than many investors because their funds are structured, though, so they're not likely to dump their entire life savings into the hands of a charlatan, unlike many private investors.

Maybe there's a way to structure this to get the benefits while still protecting the little guys. Maybe the new law's restrictions are enough, since they'll ostensibly be enforced by the gatekeepers who facilitate the investment. I certainly hope so.

I think the concern is that before the laws limiting this went into action in the 30s, some people got fleeced for a huge chunk of what they had.

That's still a big problem. Read "The Wolves of Tel Aviv", about the "binary option" scam industry.[http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-...] About 0.7% of Israel's GDP now comes from this scam, and that's just the part that pays taxes.[http://www.globes.co.il/en/article-binary-options-worth-125b...]

Wow, they're operating like a casino with awful payout ratios, and then they don't even let you cash out? That's terrible, I hope those people get shamed thoroughly for working there.

Well, some Hacker News readers would certainly have a financial stake in preserving the VC model by any means necessary.

There are risks indeed to crowdfunding, but not wholly unique ones. All one has to do is browse penny stock boards, or perhaps Bitcoin boards, these days, to find scams currently in progress and bagholders left with nothing but broken hope. Equivalently, a lot of VC-funded companies are in it to build up an impressive but fragile organization quickly and then hand it over to someone else before it explodes.

The change here is merely that we are removing gatekeepers to participating in the action at all, and the illusory veneer of stability that affords. Every company is built on some degree of faith, and that makes early investment a largely irrational proposition. The question to focus on is not "how much abuse will ensue" but "how do we mitigate damage", a question not really asked at the high levels because it is dangerously close to revealing how power works.

As someone who's been following this for years now, I couldn't agree more. Private investments into startups is the next financial market to be disrupted. Many VCs and Angels know this too but won't publicly acknowledge it.

If anything, Kickstarter et al have proven there's a massive market demand for it. It's just been the good old boys at the SEC who have been slow to catch up, even when given the mandate to.

The problem is that a huge number of the big wins in investment are quasi-legal in ways that indiegogo/etc won't permit. That's why I can't run my company raise there. Neither could have Uber, AirBNB, any of the marijuana wave that's coming, et cetera.

The purpose of VC and angel investing is to be risk tolerant, and this is extremely risk intolerant.

The downside is having X amount of shareholders you may not even know of over time. A decade down the line you may find yourself in difficult situations if you need to make some major changes. Especially with shares changing hands (e.g. inheritance).

I'd personally rather have few major shareholders on board who understand business and get it, than X amount random people all having their own ideas.

It does give more power to entrepreneur, as with more options you negotiate better investment deals.

I strongly disagree. There is HUGE value in VCs. The top ones are worth it. This is not serious. You can't have random people as shareholders. You'd be inundated with calls constantly from people who invested 500 dollars and now feel like they want to tell you what to do. No way.

There is a sibling comment by lowglow which is 'dead'; don't know why because it seems quite relevant.

Before the Securities Act of 1933, a common scheme involved pitching a pie-in-the-sky idea (e.g. a magic CGI smartwatch [1]), paying your self and cronies an absurd salary for a few years, and then calling it quits before rolling again.

No doubt, this still happens. But grandma was quarantined.

[1] http://observer.com/2014/08/indiegogos-scampaign-problem-lat...

These vaporware ideas still happen with Kickstarter & Indie Go-Go projects, except people aren't even buying equity, just a promise.

At least with owning equity there are some legal maneuvers for shareholders to go after mismanaging executives.

My favorite example of this is "Solar Freaking Roadways!". It reminds me of the "Monorail!" from The Simpsons. While there doesn't seem to be ill intent in the former, that doesn't matter if the solution is untenable. A fool and his money...

Raising money from random people on the internet sounds like a nightmare.

Every investor you take on is there for life and has a unique set of goals. The advice they give you is bent towards those goals, be it creating the best product, exiting in six months, IPOing in 10 years, or making a large social impact. I can only imagine the all-caps emails from first-time investors demanding the company go in one direction.

Investor relations can be a time sink to manage for an early stage company, especially if you have inexperienced investors who only read about the good times on TechCrunch.

> Every investor you take on is there for life and has a unique set of goals. The advice they give you is bent towards those goals

You just made the assumption that they will have a say at all! Non-voting shares are in vogue!

Non-voting shares don't save you from the emails/phone calls of naive/ignorant/stupid investors.

so much FUD around crowdfunding from people that don't know how it works or how to mitigate problems

Everything from the idea of "annoying peons", to the idea of VCs balking at a warped cap table even though the crowd can be grouped together as one

Self limiting.

No, your secretary/answering service does.

While I understand the spirit of your posts, I've learned the hard way that treating investors with less than the respect they deserve is a sure fire way to shoot yourself in the foot. They are often times the first and fastest method to raising additional capital when in a pinch. Naive investor or not.

>treating investors with less than the respect they deserve

Is not having a direct line 24/7 less respect than a investor deserves? Especially one who was invested only a few hundred dollars?

From FINRA, Delaware law and the SEC's perpsrictive, no. If you are not lawfully forthcoming the sanctions and fines will come on swiftly and heavily.

How's this for a good way to evaluate a startup while looking for employment at one: Do they talk crap about investors?

Having seen how you talk about your investors casually, I'm in little hurry to join their number.

This would seem to be a solved problem for publicly traded companies.

Investing $250K in a seed round startup buys you a lot more equity stake than buying $250k of stock in Apple. Publicly traded companies solve this problem by the virtue of their size.

The article is talking about numbers being "a couple of thousand dollars". If you're gonna put $250k in you're probably not going through Indiegogo.

The New York Stock Exchange used to prohibit listing shares where there was more than one class of stock. (The only exception was Ford, which predated that rule.) We need that back.

I'm familiar with the deal structure that Invesdor (https://www.invesdor.com/en) does. They have been doing this for years in the Nordic countries (thanks to very lax local laws), and nowadays have a license for the whole EU.

Most companies who raise through Invesdor use an "Equity Crowdfunding Shareholders' Agreement" that each investor must sign. Its wide boilerplate language prevents the small investors from selling or transferring their shares, and requires that they vote on key issues according to instructions from the Board.

That kind of agreement basically strips the investors from any actual power in the company, so their influence really is limited to "all-caps emails". Even then, my impression is that most of these small investors are reasonably well diversified (contrary to what one might expect) -- they put small amounts of money in multiple Invesdor companies, and don't expect a return any time soon.

Often they're really just looking to support the business Kickstarter-style, with no actual expectation of an exit.

>prevents the small investors from selling or transferring their shares

You can never sell or transfer your shares? Then why would you ever invest?

Before the company is publicly listed, the crowdfunding shareholders can only sell (and must sell) when the Board tells them to -- in an acquisition or merger, in other words.

This type of clause often exists in shareholders' agreements between founders as well, to prevent one founder from selling a substantial part of the company to a party the others might not approve of.

If these are Regulation A+ offerings, which they must be to sell to unaccreddited investors, then shares are free to trade on secondary markets after the offering closes. These companies may even list on OTC exchange. Here's a good slide deck on it: https://www.sec.gov/info/smallbus/acsec-071916-otc-zinn-reg-...

I'm not familiar with US regulations at all, and I wouldn't pretend to give any advice about that. The information I posted about the agreements used by Invesdor is only pertinent to the Nordic markets in which they operate (Finland and Sweden). Sorry if that wasn't clear, and thanks for the info!

Dividends. I think that system (reward investors for funding profitable companies) was healthier than today where shares exist only to be flipped and prices have no connection to performance other than speculators' psychology.

Because they don't read them and even if they did they wouldn't understand them. All of that is moot anyway since any reasonably informed investor would realize these type of non-voting shares with essentially no board representation are going to get diluted into oblivion in later funding rounds anyway.

It's almost impossible to profit as a shareholder via crowd funding even if the company is wildly successful as it stands currently. Hopefully in the future the markets or legislation will adjust this once that becomes more clear to the general public.

I assume the GP meant something similar to restricted stock, where you are severely limited in selling and transferring of your stock until certain preconditions are met (change of ownership, IPO, etc).

Privately-held stock, i.e. restricted stock of non-reporting companies, can't be sold "to the public" and generally must held for at least one year [1], but other than that is quite transferable pre-IPO. That minimum holding time can vary, too, depending on circumstances. Most transfer restrictions are put in place by companies, not law.

[1] https://www.sec.gov/investor/pubs/rule144.htm

It's not legal to go out and raise a bunch of money from unaccredited investors. Companies will most likely have to get approved for Regulation A+ by the SEC before Indiegogo agrees to sell ownership, in which case the shares are transferable once the offering is closed.

As far as the SEC is concerned you are correct, but it's possible to have additional (contractual) restrictions placed on a stock grant.

>Raising money from random people on the internet sounds like a nightmare.

Curious how much of their userbase qualifies to be an Accredited investor.


But still restricts non-accreddited investors more than accreddited, meaning that compliance requires a way to disseminate between the two.

Last time I check the SEC interpretation of the rules in 2015, they put the onus on the crowdfunding platform to make that identification.

And it's because of the points you made that most real investors will "blacklist" any company that has raised crowd equity.

However, it will be interesting to wait and see if someone (probably and accountant or lawyer) figures out a structure/vehicle that allows me utilize the positives of crowd equity while staying away from the negatives. EDIT: Maybe a crowd equity funded VC group...? Run by sophisticated investors.

It's false (at least here in the UK) that investors blacklist companies that have raised equity crowdfunding. The trend is going the other way: towards crowd equity rounds being anchored by venture funds and to VC co-investment.

See eg http://lcif.co and https://www.crowdcube.com/pg/not-just-the-crowd-1712

Re: edit, absolutely. Crowd investment into a portfolio / fund vehicle is a great idea. Likely to be more like a quant fund / index tracker though, rather than professionally managed -- because who wants to pay 3% annual fees. And what would you logically track? AIM or crowd equity platforms because they are your signal.

Isn't that just like a traditional investment bank?

Yes, but you and I don't really have the ability to put a portion of our savings into Andressen Horrowitz. At best our money ends up at a VC fund through a middle man, be it your brokerage house putting LOTS of clients money in or a work pension fund.

Legal structures need to be adapted. In Europe for equity crowdfunding, there is a "nominee structure" for example. It removes lots of pain for entrepreneurs, investors and the middleman.

Like the stock market :).

And probably the people that invest ten bucks are the ones that send the most frequent and annoying e-mails :)

It seems to me that in recent history; Every time the masses get easy access into something that historically had a high barrier to entry -- You get a huge boom and a huge crash.

Back in late 90's when everyone was starting a company with no product at all. Back in the mid 2000's when people were buying houses with no income verification.

If there is anything that is going to lead to the next bubble, this might be it.

Most likely, but at least I have the skills to cash in on this one (by delivering a product that this makes easier to finance, not by ripping anyone off). In any case, when the primary national objective becomes the construction of a gigantic wall regular economic logic has already departed via the window.

Step 1.) Raise an IndieGoGo campaign to invent some impossible thing that makes Silicon Valley middle class super excited to throw money at, offer a return. (Some fundivist nonsense)

Step 2.) Raise another IndieGoGo campaign that just promises a lesser return.

Step 3.) Raise one more IndieGoGo campaign that just promises an ever lesser returns than that.

Step 4.) Make perks payout schedules and trickle enough money out to the original raise to the few top perks of the other raises.

Now have now hypothecated a $10,000 raise to a $10,000,000 position. Wrap up the entire position in a derivate. Wrap that up in another derivative. Wrap that in a derivative. Then allocate the rest of your raise to meta counter positions that arise from those positions.

Slowly release cheap updates for the original raise and slowly lose community confidence. Trigger the derivative condition cascade. Make stupid money.

You're welcome.

I guess you are getting downbotted because you've open-sourced someone's proprietary business idea that they were going to kick off next week.

You may have better luck with the Wall Street crowd.

> if Indiegogo will even be able to get this past the SEC

It is already legal, the SEC passed Regulation A+ in 2015. Companies must be approved by the SEC for Regulation A+ and then they can sell their offering to unaccredited investors. There is limitations in number of investors and the dollar amount of investments.

I work for Issuer Direct and we help companies apply for Reg A+ and get funded.

When they passed the regulation I thought there would be a flood of broker companies trying to get the $2K (i think that was the limit) from as many people as possible. So far it doesn't look like there has been a flood. Any idea why?

What about international unaccredited investors? Say, from Italy?

I'm not exactly sure. Most of the recent "1-A" SEC Forms filed only have US States listed under "Jurisdictions in Which Securities are to be Offered" https://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=&type=...

There may be some other section that addresses the international portion of the offering. All of the companies going through Reg A+ have lawyers familiar with it writing these filings and telling the company what they should and shouldn't do. If you find one you want to invest in, your best bet is contacting the Company's Investor Relations department and they'll let you know.

Very interesting move. But companies deciding to take equity funding from a variety of investors without proper knowledge of finance (and the market for the product) can be dangerous for both companies and crowd-investors. On the one hand companies must not forget that the investors own part of their company, which entails lots of legal issues (think of shareholder meetings, etc...). On the other hand this probably makes it unattractive for institutional investors who know the difficulties of handling scattered equity.

Sounds like an opportunity for a startup: SEC compliance as a service.

Why would anyone "invest" in a startup without voting rights and antidilution protection?

Because they don't know any better. The goal is to reach people that otherwise don't have the means to invest in startups - they have money, but not expertise.

While I love the idea of crowdsourced equity investing, I think a lot of uneducated (and educated) people will lose money chasing after the hype. Hopefully it will be a learning process and some form of it will continue afterwards that is beneficial for everyone.

I was thinking this model must exist already:

- Have your bog standard crowdfunding site: bunch of projects with pics, descriptions, videos. Pretty much anything goes.

- With enough interest, appoint a due diligence person. So say some guy gathers enough money for his moonshot. Site appoints someone with real credentials (worked in space industry, auditing, etc)

- Due dilly guy gets paid for report.

- Investors decide if they want to play.

- Weakness: who does due dilly on the due dillies? I guess you need a sizeable network.

I guess they follow Fig?

In case anyone here hasn't heard of Fig they are crowd funding equity investment into videogames.

More info on their site here: https://www.fig.co/

Fig also has a really, errm, interesting corporate structure. Basically, investors get non-voting shares in a Fig subsidiary whose upside is capped at some fixed proportion of the income from the game, with Fig acting as the publisher - except without any of the usual tools such as IP ownership that publishers use to ensure games they invest money in pay up. Investors themselves also don't appear to have any standing to sue if the game developers simply refuse to pay up. There's also conflicts of interest all over the place between Fig, its subsidiary, and the developers it's handing over money to, with huge overlaps in board membership. The information for investors made for very interesting reading, though I do wonder how many investors actually read it.

    upside is capped at some fixed proportion of the income from the game
That's not usually what people mean by a capped upside. In a context like this I would take a "cap" to mean something like "your shares can't be worth more than 5x what you paid for them".

Ah. I think it got lost in editing, but the problem is that the same doesn't apply to your potential losses - if any of the games backed by Fig fails badly enough, or if Fig itself fails, you can lose your entire investment as a result, even though you won't see a penny of the returns from the other games if they succeed.

I'm really happy about this if it goes OK with the SEC etc. This would be great for small film producers who would like to attract a realistic amount of equity to realize and market a project properly, while still being able to get the microfinancing rolling with more tangible things like high quality hard copies of the film, swag etc.

This is going to open up a wonderful can of worms that will hopefully ask some interesting questions about the future of trading and investment from the average person.

This will be really cool to see. Now don't get me wrong, I'm nearly 100% sure anything like this is going to end horribly but it's good to be optimistic, right?


Please don't create new accounts to violate the guidelines with. We ban them, but we also ban the main account if it continues.

I'm really excited about the potential prospects of this. There are a lot of things that'd need to be worked out a nd a lot of decisions to be made but I think this has a ton of potential for all people. Creators and micro investors alike

> and if Indiegogo will even be able to get this past the SEC

If the President gets his SEC Commissioner confirmations, everything should be able to get past the SEC if it simply promotes transactions between people.

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