HN Explorer

Ask HN: How come there is no Kickstarter for investing?

14 points by knowledgesale ↗ HN
I am willing to invest some money into risky startup-stage businesses. Naturally enough, I would like to invest in as many projects as I can in order to diversify my risks. Sometimes I am willing to invest/donate into a company that could serve an important social role or bring change without actually expecting profits. I suspect there are plenty of people like me.

The success of the Kickstarter site is stunning. I would like to see something similar for investment projects.

I am wondering why there is no such project.

21 comments

[ 3.3 ms ] story [ 54.4 ms ] thread
alexwestholm
I think ownership and time are the major impediments. As an investor in a company, you're going to invest more than the small amounts that change hands on kickstarter, which will probably mean you want some degree of assurance in return for your money. So there's the equity part, which could be tricky to try to automate. And time wise, the projects that come up on kickstarter seem to be much shorter term than a startup would usually be, which just underscores the need for equity as a more formal commitment.

I'm sure there are ways around these issues, and I think it would be great if someone (you?) sat down and figured them out. But these are the reasons why it hasn't already been done, imho. If you can make it work, I'll definitely use it!

frisco
It's against federal law. To invest in private securities you need to be an "accredited investor" in the eyes of the SEC, or an insider.
gojomo
Securities regulations. As soon as you're issuing stock, there are many legal requirements, and you can't just advertise/issue stock to the general public without the same complexity that accompanies being listed on big stock exchanges.

If all you want from an 'investment' is warm fuzzies and perhaps some token product/service or swag – like Kickstarter campaigns offer – then Kickstarter itself can be the Kickstarter of donating to risky startup projects.

If you're an accredited investor and savvy about angel investing, you could see about joining a dealflow-matcher/community of angels like AngelList (http://angel.co/).

knowledgesale
There are many ways to raise money without selling company's shares: specifically, issuing securities (bonds are the simplest examples). There are many legal issues indeed but I still see none that cannot be resolved.

Example from profounder: https://www.profounder.com/term_sheets/profounder_public-rev...

The distribution of commitment (money and time) vs number of people who are willing to give it for a startup project has a valuable tale that is underestimated in my view.

It seems to me that there is a big market for such projects and it is an opportunity for someone alert out there.

bdclimber14
Even issuing debt (i.e. loans) still falls under the securities regulation just like equity.
trotsky
It seems to me the challenges would be that a) it'd be a mecca for fraud b) attract people who shouldn't be making such risky investments c) make it hard for startups to stay under 500 investors for public disclosure purposes and d) be sued into the ground due to a) and b)
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jonbischke
There sort of is: Profounder. More info here: http://techcrunch.com/2010/11/30/profounder-launches-to-help... and interesting thread of whether this is actually legal here: http://www.quora.com/Is-ProFounder-in-violation-of-any-secur...
noodle
looks more like a microfinance operation like prosper or lendingclub than actual investment. profits above and beyond repayment go to a nonprofit.
jessicajackley
There are two ways business can raise money on ProFounder, either through a Private Raise or a Public Raise. Private Raises do involve entrepreneurs offering securities (based around sharing a % of revenues), while Public Raises involve sharing revenues as well, but with the actual financial gain (above and beyond the original investment amount) going to a nonprofit. So, yes, investors can make "actual investments" on the site! More here: http://www.profounder.com/about/how_it_works
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peteforde
There's nothing stopping you from entertaining pitches from smart folks on Hacker News. Hell, I'd be happy to go first, if you invited it.

The nice thing about this strategy for you would be:

- even the dumb jerks on HN are generally really smart and working on cool projects

- taking initiative will make the story about you, which will bring you credibility and a higher quality deal flow

If you end up posting an "Ask HN: Why should I seed invest in your start-up?" let me know, and I'd bite.

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rms
Could you do this in Asia, or Ireland?
joshu
Companies can have a very limited number of investors before they run foul of a different set of laws. So it does not make any sense to take small amounts.

How much are you thinking of investing?

bdclimber14
What about a Kickstarter community of only Accredited Investors? Sure, this would be very tough given the requirements... but not impossible.
vorace
I worked on a project like this a while back. The heavy regulations eventually broke the whole concept. We had built a system for startups to pitch their businesses, and the investors would have been limited to accredited investors (those with > $1M or who make > $200K/year for two years). They would have bid for startups in a Dutch auction format, like the way Google went public.

However, to do this you need to be not just a startup, but an NASD certified "broker dealer." This imposes a couple things that software startups aren't good at:

1. You need $500K in the bank, just because of regulations. This means you need to raise much more than usual.

2. Several founders/early employees need to study for and pass Series 7 exams, which is what you need if you're a stockbroker. At least one person also needs to study for a similar test for brokerage management. Coding + learning to be a stock brokerage was not easy!

3. The associated legal costs were extremely high.

Kickstarter of course avoids all this by not dealing with any transfer of ownership so they don't need to worry about the government. They just sell access to creative folks, which is a good idea.

PS - Angel investors and VCs hate this concept, which makes it much harder to raise money. We brought it in front of all the biggies and were well connected, and each one argued about the personal value of their involvement, which may or may not be true.

bdclimber14
Awesome analysis. Honest to god, I get pitched this idea of a "social network for startups to get funded by accredited investors" at least once a month. A friend wanted me to develop this application for her, and was convinced every investor would be all over this. I wasn't able to show her the light, but I agree: Angels would hate this.
vincevw
I think it's more because you're a minority. Investment projects like this work because of the number of people investing at once. All invest a little and little is lost if it fails.

Kickstarter projects are cool and people love the idea of investing in something where they actually get to own a shiny gadget if it succeeds. Most startups are not and the thing that people own can take a long-long time to reap any value.

ahannula
We're working on a solution for this. However, the initial phase will only work in Europe as there is no need (except in the UK) for the investors to be "accredited". This venturebonsai.com service is aimed for companies looking for less than 1M€, with a share issue where individual persons can invest starting at 5000€ each. So in order to get 500K€ each investor investing 5000€, you need 100 investors. We actually have implemented the "EU regulation model" in order to take care of all the regulation related issues (like not offering the shares for more than 99 investors per country) and alike. Our blog is currently at venturebonsai.info. We call this (equity) crowdfunding, even though there are many intrepretations for what "crowdfunding" should and should not be...