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

by dmarinoc on 8/21/12, 10:11 AM with 15 comments

• by brudgers on 8/21/12, 1:45 PM

  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.

• by jkopelman on 8/21/12, 1:30 PM

  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.

• by nadam on 8/21/12, 12:36 PM

  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.

• by pg on 8/21/12, 3:16 PM

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

• by mayukh on 8/21/12, 12:30 PM

  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

• by tomasien on 8/21/12, 3:27 PM

  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.

• by alttab on 8/21/12, 12:20 PM

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

• by skilesare on 8/21/12, 2:38 PM

  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.