I enjoy Mark's blog. But there is something strange in his proposal to carve out $10,000 for five early investors and offer them an immediate 10x ROI on paper just for jumping first.
First of all, $10,000 is not enough money to justify giving away equity in any company with reasonable prospects, especially since issuing the equity costs money over time. This is the same problem with the Twilio fund (they should just offer free service to pre-revenue start-ups).
Second, assuming the major value of social proof is the assurance it provides later investors that people they respect see the risk-return ratio as favorable enough to risk their own capital, this will accomplish nothing but shift the equilibrium towards smaller rounds for entrepreneurs while demands for social proof will shift correspondingly ("But who else has invested $50,000....").
I respect Mark's investing in small business. But as a single founder with a bootstrapped business (outside SV), I'd chalk up someone who even suggested this as just trying to exploit me. I do think it's a good idea for investors to get compensation for effort put into organizing rounds. But the founder-friendly arrangement is performance based though, not "giving a good deal to investors [who founders] expect to help them [sometime in the future]".
I think you might be misunderstanding his proposal. He suggested raising $50k from 5 investors at a $500k post-money valuation, implying that you're selling 10% of your company to the investors in return for $50k -- and not that you're somehow giving them a free 10x.
If you get five investors and have a product making zero in revenue then it makes sense as a first round of sorts. If you already have revenue it's not a good valuation. I guess it depends on what sort of people they expect to be dealing with at this level.
First of all, $10,000 is not enough money to justify giving away equity in any company with reasonable prospects, especially since issuing the equity costs money over time. This is the same problem with the Twilio fund (they should just offer free service to pre-revenue start-ups).
Second, assuming the major value of social proof is the assurance it provides later investors that people they respect see the risk-return ratio as favorable enough to risk their own capital, this will accomplish nothing but shift the equilibrium towards smaller rounds for entrepreneurs while demands for social proof will shift correspondingly ("But who else has invested $50,000....").
I respect Mark's investing in small business. But as a single founder with a bootstrapped business (outside SV), I'd chalk up someone who even suggested this as just trying to exploit me. I do think it's a good idea for investors to get compensation for effort put into organizing rounds. But the founder-friendly arrangement is performance based though, not "giving a good deal to investors [who founders] expect to help them [sometime in the future]".