Interesting. These appear to be JOBS act short-form mini-IPOs.[1] That's something new, which just became possible this year and hasn't been used much.
Here's Farm from a Box's SEC filing.[2] Typical crappy terms - no voting rights, no anti-dilution, no transferability for one year, insiders have control.
Nobody associated with the project has a farming background. They have two employees. One is a liberal arts majors from UC Berkeley and one has an unspecified degree from UCLA. They do not have a working prototype farm according to the SEC filing.
The filing for Youngry [2] is more interesting. They want to start a glossy web site for young entrepreneurs. They claim lots of good contacts. (Miss Las Vegas?) They're only asking for $50K, which isn't enough. Two-person business.
Republic takes a 5% cut; that's how they make their money.
This is a reasonable concept, but the current set of deals isn't very impressive. These are people looking for Series A funding and would probably be rejected by YC. The idea behind the JOBS act short-form IPO was supposed to be that when your startup got too big for angel/friends and family/Kickstarter funding, there was a next level and an exit strategy for the original funders. It wasn't intended for startups this early.
You can look up these companies on the SEC's EDGAR system. If you scroll down all the way to the end of Republic's pages, there's a link.
Republic operates exclusively under Title III of the JOBS Act, which was enacted in May of this year and is intended for early-stage companies.
On deal terms, generally speaking it would be impractical for a startup to fundraise via equity crowdfunding if the hundreds or thousands of investors, each putting in as little as $10, were to have voting and information rights. The non-transferability component is actually a legal restriction put in place by the SEC, not a term that any companies raising on Republic have put in place.
Each deal page has a discussion section, if you have questions for the founding team of each company, please do ask :)
So interesting. Seems like we now have two ways for the public to buy shares in companies. On the stock exchanges, we've made it so difficult and expensive (Sarbox and other requirements) - that many companies have chosen to delay or avoid going public. So the government passed more laws to make it easier for companies to go "public" (in a different way), and we now have another system that seems to be a real wild west.
Oh government... solving unintended consequences with more unintended consequences.
I imagine there are very few good startups that would offer the general public voting rights in early stages without first being able to vet those investors.
I'm a bit leery of these. According to the article, "unless specifically negotiated, SAFE holders do not have any voting or information rights." I also suspect that the shareholders get taken care of before crowd safe holders in legal or bankruptcy proceedings. The rights of crowd safe holders haven't been tested in court.
I think the lack of rights and additional risk inherent in crowd safes would need to be compensated for by some kind of discount relative to what investors pay for shares. Otherwise, the risk-adjusted return is lower.
I would also be skeptical of the potential of a startup that can't convince normal VCs to fund them. If people who do this for a living don't think a startup is worth investing in, why should I?
> I would also be skeptical of the potential of a startup that can't convince normal VCs to fund them. If people who do this for a living don't think a startup is worth investing in, why should I?
There are plenty of SaaS companies that are naturally limited in revenue potential.
In my experience, VCs are not interested in a company with a conservative forecast of 10MM ARR in 5 years. These are still viable businesses that need capital to actualize the plan.
Alternative lending sources are crucial to these companies. While the terms of this particular idea are not ideal, I think we will see a lot of new ideas in this realm over the coming years and some will be great!
The Crowd Safe is essentially a YC Safe (which in turn is a standardized convertible note) that gives companies control over when to convert, rather than conversion necessarily happening in the following financing round. Given the ubiquity of convertible notes in early stage financings, legal treatment shouldn't be a unique concern.
To your point on startups not being able to convince VCs to fund them: much of the value of crowdfunding, from our perspective, is the ability to democratize the fundraising process by putting the decision of which companies get financed into the hands of the average person. While VC investment is surely a signal to take into account, the VC industry as a whole has shown itself to be biased in who it chooses to fund (more here: https://medium.com/equitycrowdfunding/new-impact-new-inclusi...).
For many companies, there are also significant brand loyalty and marketing benefits to doing a crowdfunding campaign and letting their users play a role in their growth as a company.
Shareholders rarely get anything in a bankruptcy, and at best it tends to be pennies on the dollar, so that seems like a minor concern.
Voting rights are more interesting, but my impression is that tiny shareholders in startups are usually bound by tight shareholders' agreements so that they must vote along with the majority investors anyway. (That at least seems to be the practice in Europe.)
Being skeptical is also good, but on the flip side there is a lot of money floating around in peoples private bank accounts that is seeking an investment target. I mean, how would one invest $10 in a startup through the traditional VC model? There's no way. This model can be seen as an alternative. There's no inherent reason to think of it as a backup for startups that failed to get VC funding. It's just money from people who are not VCs.
The general counterargument to the "we're in a bubble" observation has been that it's all private equity, that people aren't risking their houses or 401(k)s on startups this time around. This would appear to be a move in that direction.
There are a number of similar sites (wefunder was YC, and Angellist dominates the space).
We shouldn't treat the "public at large" like kids, and they have the right to do what they want with their money.
HOWEVER, I do hope that people don't get hopped up on TechCrunch stories about gazillion dollar exits and then cash out their 401k to invest in some company or another.
They should know that the vast majority of startups fail, and that the chances are any particular one will fail. They should also understand that it isn't worth the due diligence for $100 or something, so you're really taking a flier unless you piggyback off someone else's diligence (which you should).
Startups as investments are very risky with long payoff horizons. With their limited funds, this is a poor investment for the average investor. I can't help but feel like this will hurt more people then it will help.
It appears that the Startup/issuer sets a static offering price [0]. When I envision how crowdsourced investing would reinvent this space, a huge component of the value added would be a degree of price-elasticity and feedback. It doesn't have to be a full-on auction, but getting the pricing right (for the issuer) seems like THE killer feature here... (thinking back to the concept of how Google priced their IPO )[1]. Offering a product that facilitated more innovative pricing structures at offering would be extremely compelling - and would greatly increase Republic.co's target market as well.
Don't current Title III rules make it legally risky for companies to crowdfund like this? The last thing I read about this suggested that crowdfunding like this could put a startup in a position of having to effectively go public very early in their life --- which would suggest that none of the best startups would crowdfund, which would create a major adverse selection problem for Republic.
You're right -- a company with $25M in assets and 500 unaccredited shareholders is essentially forced to go public. That's why traditional security instruments are poorly suited for investment crowdfunding. We created and open-sourced a derivative of the YC Safe called the Crowd Safe to solve for this (more at https://republic.co/crowdsafe).
That strikes me as a very cynical view, and I consider myself to be a pretty cynical guy. You could also make the same argument about other market platforms:
Wow, I'm blown away by the negativity in this thread. I know Silicon Valley is conservative but this is killing it.
In Europe (of all places), this sort of stuff has been going on for a number of years now. The first startup I worked for had gathered its €150k preseed funding from over 20 people. Not even with a convertible note, they really all went to the lawyer's office together. It was pretty nuts, but it got the product out (and then tanked miserably but hey, people knew what they were getting into).
Sites like Leapfunder (https://www.leapfunder.com/) have been doing what Republic does for years, but then in Europe. As far as I can see, the only reason the US is behind on this one is the "accredited investor" rule that European countries don't appear to have. I wonder how Republic works around that but I guess it's a good development. I have a hard time understanding how any "you're only allowed to X if you're rich" law can be fair (and I'd assume that especially libertarian HN would be with me on that one).
But still, HN's conclusion is that it's stupid to do this? What? Why is it stupid to invest $5k in a startup but not to invest $500k in a startup? If you ask me, that's irrational to the bone. If you really can't imagine some good reasons why a company wouldn't want to raise from a VC but would prefer to crowdfund, you didn't really try very hard.
I can't find it back but did HN react the same when Kickstarted got launched? Is there really that big a difference between "first to get a Pebble" and "first to get some Pebble shares"?
> Why is it stupid to invest $5k in a startup but not to invest $500k in a startup?
Because if you invest $500k, you get information rights, and a significant number of votes. If you invest $5k, you get nothing, and you just have to hope the company makes good decisions. It's like buying a $5k lottery ticket -- it's an investment based entirely on trust without any information, accountability, or influence over the outcome.
I suspect that the real reason companies want to crowdfund is to raise money without giving information and voting rights to their investors.
I don't think anyone is opposed to this for classist reasons like you're suggesting. You're bringing up Kickstarter as an example of a successful crowdfunding service, but in this context Kickstarter seems like more of a cautionary tale.
Kickstarter is definitely a mixed bag, but I don't blame Kickstarter itself for that. Kickstarter is awesome, and many awesome things now exist that wouldn't have existed without it. I love Kickstarter.
The problems with Kickstarter are with some of the people using it. It's all just human nature, I don't think there's anything that Kickstarter (the company) can really do to curtail it.
Problems include people starting projects from scratch via Kickstarter, and making promises about schedules and deliverables when in many cases those things are literally unknowable when they start accepting money from people. Sometimes people get in over their head, and don't realize how deep of a hole they've dug themselves into until it's way too late.
Problems also include people giving money to Kickstarters and assuming that the schedules are real, that the products will turn out as they've been pitched, and that they will receive what's been promised to them. Hopefully everything works out, but realistically you've got to be OK with the worst-case scenario (you get nothing back) when you back a project.
I see Kickstarter as more of an angel investment vehicle, and I think Kickstarter tries to present itself in this way. If something looks promising, I might put some money into it, but beyond that I have no expectation that I will ever get anything out of it. It's a pleasant surprise if I do. However, no matter how many times Kickstarter tells people that Kickstarter is not a store, there's a continuous stream of people who seem surprised when things don't turn out as expected, and will scream for refunds and devote insane amounts of time to ruining the lives of the people who bit off more than they could chew when they started raising money.
Basically, in addition to its merits, Kickstarter can be a brutally productive factory of sadness, for the people with Kickstarters as well as the backers. Given that something like 90-95% of startups fail (I could be wrong, but those are the numbers I usually hear), Republic sounds like it could be an even bigger factory for vastly more sadness, without the success stories that make it all worthwhile. The few people who luck into putting money into a successful startup will surely get very angry and entitled when they see a small business that they gifted money to becoming successful, but they don't see an equivalent return on their investment. The 90-95% of the people who lose their money when the startup folds will surely also be surprised and angry, and demand their money back if they don't think the startup was competently run (not that they have any way to really know this). It just sounds like all downside with very little (if any) upside.
"Why is it stupid to invest $5k in a startup but not to invest $500k in a startup?"
In addition to the $500k buying more information and actual shareholder rights, someone who is investing $500k is likely doing so from a fund, or otherwise isn't going to miss the $500k if the investment goes belly up. The $5k investor would probably be hurt a lot more by losing the $5k, AND they don't get the information necessary to make an informed decision.
> Crowdfunding investing is highly speculative and every investment may result in a loss. By investing small amounts across multiple companies, you can reduce your risk compared to a large investment in a single company.
But there's only four companies.
> Do your own research. Read the documents provided by each company you plan on investing in. Get independent legal, accounting, financial advice. If you have any questions or need more information, ask the company.
Sounds expensive.
Maybe we crowdfund the advice too? Is someone going to make a robo-VC like lendingrobot?
One of the tags for projects is "Women Founders". In theory that shouldn't make a difference as to how investable a project is or isn't? It seems as ridiculous as giving the founder's favourite colours or ethnicity. I just don't understand what they were thinking when they put that feature in.
I can see this having all the same problems Kickstarter has with video games:
- A bunch of people whose only experience with the industry is as consumers, with no real knowledge of how investing or the field they're investing in works
- Companies that have little more than an idea and big promises, lacking the skill, manpower, and knowledge of how to see a product through from conception to release (plus a lack of knowledge on how to obtain those things)
- Companies that stop updating and eventually just run off with the money
- People who think they're entitled to a refund if what they invested in fails
Will "Angel Investor at Republic" overtake "CEO and Founder at Company That Is Literally Just A Facebook Page" as the job title of choice for wannabe tech bros?
Jared Friedman, YC Partner, post from 3 days ago, on raising money online and the differences between the various crowdfunding services, Angellist syndicates and YC:
This really does seem the same. Actually, I invested in one there just so say I could.
But there's some weird things on this site:
- there's something called investment clubs where you can recommend companies to nearly-passive investors and get 10% of something out of it. But there's no inventory on this site either so why are they being paid for no work? I'm sure I could guess every investment just from the name of their club and skip the middleman.
- several companies are just selling you bonds ("revenue share" and "loan money"). Seems strictly worse than buying some regular bonds, and why does a startup want to return capital anyway?
(But personally -- although I can't prove that I'm smart money just yet -- I'd recommend avoiding tech stocks in the first place. Don't just think of the fate of Myspace and Netscape; think of Iomega and Sun Microsystems...)
[+] [-] Animats|9 years ago|reply
Here's Farm from a Box's SEC filing.[2] Typical crappy terms - no voting rights, no anti-dilution, no transferability for one year, insiders have control.
Nobody associated with the project has a farming background. They have two employees. One is a liberal arts majors from UC Berkeley and one has an unspecified degree from UCLA. They do not have a working prototype farm according to the SEC filing.
The filing for Youngry [2] is more interesting. They want to start a glossy web site for young entrepreneurs. They claim lots of good contacts. (Miss Las Vegas?) They're only asking for $50K, which isn't enough. Two-person business.
Republic takes a 5% cut; that's how they make their money.
This is a reasonable concept, but the current set of deals isn't very impressive. These are people looking for Series A funding and would probably be rejected by YC. The idea behind the JOBS act short-form IPO was supposed to be that when your startup got too big for angel/friends and family/Kickstarter funding, there was a next level and an exit strategy for the original funders. It wasn't intended for startups this early.
You can look up these companies on the SEC's EDGAR system. If you scroll down all the way to the end of Republic's pages, there's a link.
[1] https://media2.mofo.com/documents/120416-pli-quick-guide-job... [2] https://www.sec.gov/Archives/edgar/data/1679373/000167937316... [3] https://www.sec.gov/Archives/edgar/data/1679372/000167937216...
[+] [-] pmen|9 years ago|reply
Republic operates exclusively under Title III of the JOBS Act, which was enacted in May of this year and is intended for early-stage companies.
On deal terms, generally speaking it would be impractical for a startup to fundraise via equity crowdfunding if the hundreds or thousands of investors, each putting in as little as $10, were to have voting and information rights. The non-transferability component is actually a legal restriction put in place by the SEC, not a term that any companies raising on Republic have put in place.
Each deal page has a discussion section, if you have questions for the founding team of each company, please do ask :)
[+] [-] jliptzin|9 years ago|reply
[+] [-] tuna-piano|9 years ago|reply
Oh government... solving unintended consequences with more unintended consequences.
[+] [-] krisdol|9 years ago|reply
[+] [-] twblalock|9 years ago|reply
More info here: http://www.crowdfundinsider.com/2016/06/87034-republic-adds-...
I'm a bit leery of these. According to the article, "unless specifically negotiated, SAFE holders do not have any voting or information rights." I also suspect that the shareholders get taken care of before crowd safe holders in legal or bankruptcy proceedings. The rights of crowd safe holders haven't been tested in court.
I think the lack of rights and additional risk inherent in crowd safes would need to be compensated for by some kind of discount relative to what investors pay for shares. Otherwise, the risk-adjusted return is lower.
I would also be skeptical of the potential of a startup that can't convince normal VCs to fund them. If people who do this for a living don't think a startup is worth investing in, why should I?
[+] [-] leesalminen|9 years ago|reply
There are plenty of SaaS companies that are naturally limited in revenue potential.
In my experience, VCs are not interested in a company with a conservative forecast of 10MM ARR in 5 years. These are still viable businesses that need capital to actualize the plan.
Alternative lending sources are crucial to these companies. While the terms of this particular idea are not ideal, I think we will see a lot of new ideas in this realm over the coming years and some will be great!
[+] [-] pmen|9 years ago|reply
The Crowd Safe is essentially a YC Safe (which in turn is a standardized convertible note) that gives companies control over when to convert, rather than conversion necessarily happening in the following financing round. Given the ubiquity of convertible notes in early stage financings, legal treatment shouldn't be a unique concern.
To your point on startups not being able to convince VCs to fund them: much of the value of crowdfunding, from our perspective, is the ability to democratize the fundraising process by putting the decision of which companies get financed into the hands of the average person. While VC investment is surely a signal to take into account, the VC industry as a whole has shown itself to be biased in who it chooses to fund (more here: https://medium.com/equitycrowdfunding/new-impact-new-inclusi...).
For many companies, there are also significant brand loyalty and marketing benefits to doing a crowdfunding campaign and letting their users play a role in their growth as a company.
[+] [-] pavlov|9 years ago|reply
Voting rights are more interesting, but my impression is that tiny shareholders in startups are usually bound by tight shareholders' agreements so that they must vote along with the majority investors anyway. (That at least seems to be the practice in Europe.)
[+] [-] antris|9 years ago|reply
Being skeptical is also good, but on the flip side there is a lot of money floating around in peoples private bank accounts that is seeking an investment target. I mean, how would one invest $10 in a startup through the traditional VC model? There's no way. This model can be seen as an alternative. There's no inherent reason to think of it as a backup for startups that failed to get VC funding. It's just money from people who are not VCs.
[+] [-] gffrd|9 years ago|reply
[+] [-] homero|9 years ago|reply
[+] [-] tspike|9 years ago|reply
[+] [-] fullshark|9 years ago|reply
[+] [-] inputcoffee|9 years ago|reply
We shouldn't treat the "public at large" like kids, and they have the right to do what they want with their money.
HOWEVER, I do hope that people don't get hopped up on TechCrunch stories about gazillion dollar exits and then cash out their 401k to invest in some company or another.
They should know that the vast majority of startups fail, and that the chances are any particular one will fail. They should also understand that it isn't worth the due diligence for $100 or something, so you're really taking a flier unless you piggyback off someone else's diligence (which you should).
[+] [-] agconti|9 years ago|reply
[+] [-] smacktoward|9 years ago|reply
They're not great for institutional investors either: http://www.bloomberg.com/news/articles/2016-08-10/venture-ca...
[+] [-] crypto5|9 years ago|reply
[+] [-] jonpaine|9 years ago|reply
[0] https://republic.co/learn/issuers/how_it_works [1] http://www.wsj.com/articles/SB108328345314098183 (potential paywall)
[+] [-] tptacek|9 years ago|reply
[+] [-] pmen|9 years ago|reply
[+] [-] justrossthings|9 years ago|reply
[+] [-] ryandrake|9 years ago|reply
"Ebay - Buy things real shoppers won't"
"Uber - Get a ride somewhere real taxis won't go"
"Monster.com - Hire people real employers won't"
Is it really that different?
[+] [-] harigov|9 years ago|reply
[+] [-] skrebbel|9 years ago|reply
In Europe (of all places), this sort of stuff has been going on for a number of years now. The first startup I worked for had gathered its €150k preseed funding from over 20 people. Not even with a convertible note, they really all went to the lawyer's office together. It was pretty nuts, but it got the product out (and then tanked miserably but hey, people knew what they were getting into).
Sites like Leapfunder (https://www.leapfunder.com/) have been doing what Republic does for years, but then in Europe. As far as I can see, the only reason the US is behind on this one is the "accredited investor" rule that European countries don't appear to have. I wonder how Republic works around that but I guess it's a good development. I have a hard time understanding how any "you're only allowed to X if you're rich" law can be fair (and I'd assume that especially libertarian HN would be with me on that one).
But still, HN's conclusion is that it's stupid to do this? What? Why is it stupid to invest $5k in a startup but not to invest $500k in a startup? If you ask me, that's irrational to the bone. If you really can't imagine some good reasons why a company wouldn't want to raise from a VC but would prefer to crowdfund, you didn't really try very hard.
I can't find it back but did HN react the same when Kickstarted got launched? Is there really that big a difference between "first to get a Pebble" and "first to get some Pebble shares"?
[+] [-] twblalock|9 years ago|reply
Because if you invest $500k, you get information rights, and a significant number of votes. If you invest $5k, you get nothing, and you just have to hope the company makes good decisions. It's like buying a $5k lottery ticket -- it's an investment based entirely on trust without any information, accountability, or influence over the outcome.
I suspect that the real reason companies want to crowdfund is to raise money without giving information and voting rights to their investors.
[+] [-] detaro|9 years ago|reply
[+] [-] forgetsusername|9 years ago|reply
The area that is generally known as the innovation capital of the planet is conservative? Can't say I agree.
[+] [-] mwfunk|9 years ago|reply
Kickstarter is definitely a mixed bag, but I don't blame Kickstarter itself for that. Kickstarter is awesome, and many awesome things now exist that wouldn't have existed without it. I love Kickstarter.
The problems with Kickstarter are with some of the people using it. It's all just human nature, I don't think there's anything that Kickstarter (the company) can really do to curtail it.
Problems include people starting projects from scratch via Kickstarter, and making promises about schedules and deliverables when in many cases those things are literally unknowable when they start accepting money from people. Sometimes people get in over their head, and don't realize how deep of a hole they've dug themselves into until it's way too late.
Problems also include people giving money to Kickstarters and assuming that the schedules are real, that the products will turn out as they've been pitched, and that they will receive what's been promised to them. Hopefully everything works out, but realistically you've got to be OK with the worst-case scenario (you get nothing back) when you back a project.
I see Kickstarter as more of an angel investment vehicle, and I think Kickstarter tries to present itself in this way. If something looks promising, I might put some money into it, but beyond that I have no expectation that I will ever get anything out of it. It's a pleasant surprise if I do. However, no matter how many times Kickstarter tells people that Kickstarter is not a store, there's a continuous stream of people who seem surprised when things don't turn out as expected, and will scream for refunds and devote insane amounts of time to ruining the lives of the people who bit off more than they could chew when they started raising money.
Basically, in addition to its merits, Kickstarter can be a brutally productive factory of sadness, for the people with Kickstarters as well as the backers. Given that something like 90-95% of startups fail (I could be wrong, but those are the numbers I usually hear), Republic sounds like it could be an even bigger factory for vastly more sadness, without the success stories that make it all worthwhile. The few people who luck into putting money into a successful startup will surely get very angry and entitled when they see a small business that they gifted money to becoming successful, but they don't see an equivalent return on their investment. The 90-95% of the people who lose their money when the startup folds will surely also be surprised and angry, and demand their money back if they don't think the startup was competently run (not that they have any way to really know this). It just sounds like all downside with very little (if any) upside.
[+] [-] st3v3r|9 years ago|reply
In addition to the $500k buying more information and actual shareholder rights, someone who is investing $500k is likely doing so from a fund, or otherwise isn't going to miss the $500k if the investment goes belly up. The $5k investor would probably be hurt a lot more by losing the $5k, AND they don't get the information necessary to make an informed decision.
[+] [-] astrange|9 years ago|reply
But there's only four companies.
> Do your own research. Read the documents provided by each company you plan on investing in. Get independent legal, accounting, financial advice. If you have any questions or need more information, ask the company.
Sounds expensive.
Maybe we crowdfund the advice too? Is someone going to make a robo-VC like lendingrobot?
[+] [-] bArray|9 years ago|reply
[+] [-] justinlardinois|9 years ago|reply
- A bunch of people whose only experience with the industry is as consumers, with no real knowledge of how investing or the field they're investing in works
- Companies that have little more than an idea and big promises, lacking the skill, manpower, and knowledge of how to see a product through from conception to release (plus a lack of knowledge on how to obtain those things)
- Companies that stop updating and eventually just run off with the money
- People who think they're entitled to a refund if what they invested in fails
Will "Angel Investor at Republic" overtake "CEO and Founder at Company That Is Literally Just A Facebook Page" as the job title of choice for wannabe tech bros?
[+] [-] Osiris30|9 years ago|reply
http://www.themacro.com/articles/2016/08/raising-money-onlin...
[+] [-] minton|9 years ago|reply
[+] [-] astrange|9 years ago|reply
But there's some weird things on this site:
- there's something called investment clubs where you can recommend companies to nearly-passive investors and get 10% of something out of it. But there's no inventory on this site either so why are they being paid for no work? I'm sure I could guess every investment just from the name of their club and skip the middleman.
- several companies are just selling you bonds ("revenue share" and "loan money"). Seems strictly worse than buying some regular bonds, and why does a startup want to return capital anyway?
[+] [-] akhatri_aus|9 years ago|reply
CrowdCube (European startup) has been doing this for years.
[+] [-] philippnagel|9 years ago|reply
[+] [-] ch4ch4|9 years ago|reply
[+] [-] HillaryBriss|9 years ago|reply
[+] [-] clock_tower|9 years ago|reply
(But personally -- although I can't prove that I'm smart money just yet -- I'd recommend avoiding tech stocks in the first place. Don't just think of the fate of Myspace and Netscape; think of Iomega and Sun Microsystems...)
[+] [-] bandrami|9 years ago|reply
[+] [-] illyism|9 years ago|reply
[deleted]
[+] [-] melvinmt|9 years ago|reply
[+] [-] tspike|9 years ago|reply